IDEAS home Printed from
   My bibliography  Save this article

Inefficient Diversification in Multi-market Oligopoly with Diseconomies of Scope


  • Dixon, Huw David


This paper considers the incentives of oligopolistic firms to diversify into technologically related markets when there are diseconomies of scope. There is a rent extraction incentive for firms to adopt flexible technologies that enable them to enter technologically related markets, thereby increasing competition. However, this strategic motive leads to inefficiency in production owing to diseconomies of scope. This paper shows that the welfare gain arising from increased competition is offset by the inefficiency in production, which may lead to lower welfare than in the case of pure monopoly. This is a counterexample to the contention that the diversification increases social welfare. Copyright 1994 by The London School of Economics and Political Science.

Suggested Citation

  • Dixon, Huw David, 1994. "Inefficient Diversification in Multi-market Oligopoly with Diseconomies of Scope," Economica, London School of Economics and Political Science, vol. 61(242), pages 213-219, May.
  • Handle: RePEc:bla:econom:v:61:y:1994:i:242:p:213-19

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See for details.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    1. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
    2. Theodore C. Bergstrom, 2001. "Free Labour for Costly Journals?," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 183-198, Fall.
    3. Kachelmeier, Steven J. & Limberg, Stephen T. & Schadewald, Michael S., 1991. "Fairness in markets: A laboratory investigation," Journal of Economic Psychology, Elsevier, vol. 12(3), pages 447-464, September.
    4. Miller, Kenneth E & Sturdivant, Frederick D, 1977. " Consumer Responses to Socially Questionable Corporate Behavior: An Empirical Test," Journal of Consumer Research, Oxford University Press, vol. 4(1), pages 1-7, June.
    5. repec:cdl:ucsbec:16-01 is not listed on IDEAS
    6. Franciosi, Robert, et al, 1995. "Fairness: Effect on Temporary and Equilibrium Prices in Posted-Offer Markets," Economic Journal, Royal Economic Society, vol. 105(431), pages 938-950, July.
    7. Sen, Sankar & Gurhan-Canli, Zeynep & Morwitz, Vicki, 2001. " Withholding Consumption: A Social Dilemma Perspective on Consumer Boycotts," Journal of Consumer Research, Oxford University Press, vol. 28(3), pages 399-417, December.
    8. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    9. Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 529-544.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Neubauer, Silke, 1999. "Multimarket contact, collusion and the internal structure of firms," Discussion Papers, Research Unit: Market Dynamics FS IV 99-25, Social Science Research Center Berlin (WZB).
    2. Davide Vannoni, 2000. "The diversifield firm: non formal theories versus formal models," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2000(106).
    3. Lucas Navarro, 2012. "Plant level evidence on product mix changes in Chilean manufacturing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 165-195, February.
    4. L. Colombo & P. Labrecciosa & L. Lambertini, 2005. "A Chicken Game of Intraindustry Trade," Working Papers 548, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. Alessandro Sembenelli & Davide Vannoni, 2001. "Market Structures with Multi-product Firms: Welfare Analysis and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 1(2), pages 161-179, June.
    6. Neubauer, Silke, 1997. "Interdivisional information sharing: the strategic advantage of knowing nothing," Discussion Papers, Research Unit: Market Dynamics FS IV 97-33, Social Science Research Center Berlin (WZB).
    7. Neubauer, Silke, 1997. "The consequences of endogenous timing for diversification strategies of multimarket firms," Discussion Papers, various Research Units FS IV 97-34, Social Science Research Center Berlin (WZB).
    8. Nachum, Lilach, 1999. "Diversification strategies of developing country firms," Journal of International Management, Elsevier, vol. 5(2), pages 115-140.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econom:v:61:y:1994:i:242:p:213-19. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.