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Divide and conquer On the profitability of forming independent rival divisions

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  • Polasky, Stephen

Abstract

In this paper, a two-stage model is presented in which firms chose market structure in stage one and play a Cournot game in the second stage. In a one-period game, if a single firm is given a choice in stage one, it will chose to from independent rival divisions rather than remained as a unified whole. The sub game perfect equilibrium outcome of this game is the same as in a Stackleberg game in which one firm commits to quantity prior to the simultaneous choice of quantity by its rivals. In a multi-period game, with firms making alternating market structure choices, it is possible to generate endogenous cyclical fluctuations in market concentration.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 40 (1992)
Issue (Month): 3 (November)
Pages: 365-371

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Handle: RePEc:eee:ecolet:v:40:y:1992:i:3:p:365-371

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Cited by:
  1. Tan, Guofu & Yuan, Lasheng, 2003. "Strategic incentives of divestitures of competing conglomerates," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 673-697, May.
  2. Rysman, Marc, 2001. "How many franchises in a market?," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 519-542, March.
  3. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, vol. 66(1), pages 22-32.
  4. Joao Carlos Correia Leitao, 2004. "Optimal Divisionalization for Selling Networks of Cable Television Services," Industrial Organization 0403004, EconWPA.
  5. Eichberger, J├╝rgen & Mueller-Langer, Frank, 2012. "On the Welfare Effects of Exclusive Distribution Arrangements," MPRA Paper 39691, University Library of Munich, Germany.
  6. Ziss, Steffen, 1998. "Divisionalization and product differentiation," Economics Letters, Elsevier, vol. 59(1), pages 133-138, April.
  7. Saggi, Kamal & Vettas, Nikolaos, 1999. "On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties," Working Papers 99-06, Duke University, Department of Economics.
  8. A. Mukherjee & U. Broll & S. Mukherjee, 2008. "Unionized labor market and licensing by a monopolist," Journal of Economics, Springer, vol. 93(1), pages 59-79, February.
  9. Mukherjee, Soma & Broll, Udo & Mukherjee, Arijit, 2007. "Licensing by a monopolist and unionized labor market," Dresden Discussion Paper Series in Economics 09/07, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  10. Tsygankova, Marina, 2010. "When is a break-up of Gazprom good for Russia?," Energy Economics, Elsevier, vol. 32(4), pages 908-917, July.
  11. Baye, Michael R. & Crocker, Keith J. & Ju, Jiandong, 1996. "Divisionalization and franchising incentives with integral competing units," Economics Letters, Elsevier, vol. 50(3), pages 429-435, March.
  12. Michiel Bijlsma & Gijsbert Zwart, 2009. "Competition for access; spectrum rights and downstream access in wireless telecommunications," CPB Discussion Paper 123, CPB Netherlands Bureau for Economic Policy Analysis.

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