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Cost Hetrogeneity and Strategic Divisionalization

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Author Info
Kazumichi, Iwasa
Toru , Kikuchi

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Abstract

In this note, we consider a simple duopoly environment in which two parent firms compete in a market. We assume that there are cost differentials between these two parent firms. The parent firms' choices of divisionalization are modeled as a two-stage game. It will be shown that the number of divisions of a parent firm with a cost advantage (i.e., lower marginal costs) is relatively large. The results imply that the cost advantage of one parent firm will be magnified through divisionalization decisions.

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File URL: http://mpra.ub.uni-muenchen.de/5693/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5693.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:5693

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L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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  1. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Lasheng Yuan, 1999. "Product Differentiation, Strategic Divisionalization, and Persistence of Monopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(4), pages 581-602, December. [Downloadable!] (restricted)
  4. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-36, March. [Downloadable!] (restricted)
  5. Corchon, Luis C., 1991. "Oligopolistic competition among groups," Economics Letters, Elsevier, vol. 36(1), pages 1-3, May. [Downloadable!] (restricted)
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