Partial Cross Ownership, Exclusive Contracting,And Market Entry

In this paper, we demonstrate that the anticompetitive effect of exclusive contractingon market entry can be completely nullified if the entrant is allowedto sell partial cross ownership (PCO) to the incumbent. In equilibrium theincumbent is fully compensated and efficient entry occurs; thus PCO increaseswelfare although we find consumer surplus is reduced. The entrant offers alower share of ownership to the incumbent if the entrant (incumbent) is more(less) efficient. Finally, we compare PCO to other mechanisms in the literatureand show it is often a more feasible means of overcoming exclusive contracting