<p>This paper develops a two-stage game to analyse firms’ incentives to adopt mutual passive interlocking cross-ownership in a duopolistic network industry. In the first, decision-making stage, shareholders choose whether to engage in reciprocal cross-ownership; in the second, market stage, firms compete simultaneously in quantities (Cournot) or prices (Bertrand). Under full compatibility, we show that network effects can, under specific conditions, overturn the conventional belief that cross-ownership is invariably profit-enhancing, giving rise, for example, to: (1) a prisoner’s dilemma in which self-interest and the mutual benefits of cross-ownership conflict (under both quantity and price competition), and (2) an anti-coordination game in which only one firm strategically adopts cross-ownership (under price competition). Moreover, the degree of product compatibility generates a rich set of subgame-perfect Nash equilibria of the cross-ownership decision game. To the extent that the anti-competitive practice of mutual interlocking cross-ownership may arise, our findings provide a new, endogenous explanation for the empirical observation of markets with reciprocal, unilateral, or no cross-ownership, and they offer novel insights and antitrust policy implications that emerge uniquely from the interplay between endogenous ownership choice and network effects, as well as for achieving Pareto-superior outcomes.</p>