Can cross-holdings benefit consumers?

Common wisdom suggests that cross-holdings can lead to significant output contraction, and thus hurt consumers. On the contrary, we demonstrate that cross-holdings may increase industry output and benefit consumers in an asymmetric Cournot oligopoly with the presence of a welfare-maximizing tax/subsidy policy. The government will strategically use the tax/subsidy policy to regulate the market outcomes in anticipation of the adverse effect of cross-holdings, which could raise industry output and benefit consumers in certain situations depending on the cost distributions and cross-holding structures.