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Cost Hetrogeneity and Strategic Divisionalization

Author

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  • Kazumichi, Iwasa
  • Toru, Kikuchi

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.

Suggested Citation

  • Kazumichi, Iwasa & Toru, Kikuchi, 2007. "Cost Hetrogeneity and Strategic Divisionalization," MPRA Paper 5693, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5693
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    File URL: https://mpra.ub.uni-muenchen.de/5693/1/MPRA_paper_5693.pdf
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    References listed on IDEAS

    as
    1. 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 223-236, March.
    2. Corchon, Luis C., 1991. "Oligopolistic competition among groups," Economics Letters, Elsevier, vol. 36(1), pages 1-3, May.
    3. 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.
    4. Lasheng Yuan, 1999. "Product Differentiation, Strategic Divisionalization, and Persistence of Monopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 581-602, December.
    5. 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.
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    Cited by:

    1. Fauli-Oller, Ramon, 2022. "Divisionalization with asymmetric production costs," Mathematical Social Sciences, Elsevier, vol. 118(C), pages 22-29.

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    More about this item

    JEL classification:

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

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