A theoretical model is built to explain the cross-sectional differences in investment and competition behavior between business groups and independent firms. The model describes how a business group determines its cross-equity holdings. As the existing literature shows, it suggests that a group-affiliated firm can deter the entry of a competitor through an aggressive strategy of investment. Furthermore, a pyramidal business group can avoid predation because it can be super-aggressive, mobilizing external capital. The pyramidal structure helps to compensate for the weakness of the internal capital market, namely, the lack of commitment in competition.