This paper shows how competing firms can facilitate tacit collusion by making passive investments in rivals. In general, the incentives of firms to collude depend in a complex way on the whole set of partial cross ownership (PCO) in the industry. We show that when firms are identical, only...

A major shortcoming of the growing empirical work on asymmetric information is the inability to separately identify moral hazard from adverse selection. Abbring et. al. (2003) point out that dynamic insurance data can help here, by asking whether consumers have fewer claims when they are at a...