Ramón Faulí-Oller () (Universidad de Alicante) Lluís Bru () (Universitat de les Illes Balears) José Manuel Ordóñez de Haro (Universidad de Málaga)
Abstract
We study the incentives to create divisions by a firm once it is taken into account the vertical structures of an industry. Downstream firms, that must buy an essential input to upstream firms, may create divisions. Divisionalization reduces their bargaining power against upstream firms. This effect must be weighted against the usual incentive to divisionalize, namely the increase in the share of the final market that a firm obtains through it. We show that incentives to divisonalize are severely reduced when compared with the standard results, and that even sometimes firms choose not to divisionalize at all. The paper also shows the implications of the former analysis on the internal organization of firms and on the incentives to vertically integrate.
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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number
2001-28.
Length: 21 pages Date of creation: Nov 2001 Date of revision: Publication status: Published by Ivie Handle: RePEc:ivi:wpasad:2001-28
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