IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v116y2019icp50-57.html
   My bibliography  Save this article

Multidivisional firms, internal competition, and comparative advantage: Baye et al. Meet Neary

Author

Listed:
  • Beladi, Hamid
  • Chakrabarti, Avik

Abstract

We present a tractable general equilibrium model to capture the effects of divisionalization on trade in oligopolistic industries. Divisionalization reduces the incentives for diversification in production. The extensive margins of trade expand as a result of divisionalization, facilitating specialization toward the direction of comparative advantage, with exports rising in the case of domestic divisionalization and imports rising in the case of foreign divisionalization. This effect of internal competition on specialization is magnified when competition between divisions is staggered. The factor market effects of divisionalization, domestic and/or foreign, strengthen the expansionary effects on the extensive margins of trade.

Suggested Citation

  • Beladi, Hamid & Chakrabarti, Avik, 2019. "Multidivisional firms, internal competition, and comparative advantage: Baye et al. Meet Neary," Journal of International Economics, Elsevier, vol. 116(C), pages 50-57.
    • Handle: RePEc:eee:inecon:v:116:y:2019:i:c:p:50-57
    DOI: 10.1016/j.jinteco.2018.10.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199618304331
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2018.10.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    References listed on IDEAS

    as
    1. repec:hal:pseose:halshs-00754258 is not listed on IDEAS
    2. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    3. Marius Schwartz & Earl A. Thompson, 1986. "Divisionalization and Entry Deterrence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 307-321.
    4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    5. Chen, Hogan & Kondratowicz, Matthew & Yi, Kei-Mu, 2005. "Vertical specialization and three facts about U.S. international trade," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 35-59, March.
    6. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, June.
    7. Stewart Johnston, 2005. "Headquarters and Subsidiaries in Multinational Corporations," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-51100-2, December.
    8. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1229-1257.
    9. Lorenzo Caliendo & Esteban Rossi-Hansberg, 2012. "The Impact of Trade on Organization and Productivity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1393-1467.
    10. Polasky, Stephen, 1992. "Divide and conquer On the profitability of forming independent rival divisions," Economics Letters, Elsevier, vol. 40(3), pages 365-371, November.
    11. J. Peter Neary, 2003. "Presidential Address: Globalization and Market Structure," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 245-271, 04/05.
    12. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    13. 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.
    14. Beladi Hamid & Chakrabarti Avik & Marjit Sugata, 2015. "On Cross-Border Mergers and Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 37-51, January.
    15. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2013. "Cross-border mergers in vertically related industries," European Economic Review, Elsevier, vol. 59(C), pages 97-108.
    16. Erickson, Gary M., 2012. "Transfer pricing in a dynamic marketing-operations interface," European Journal of Operational Research, Elsevier, vol. 216(2), pages 326-333.
    17. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
    18. Suga, Nobuhito, 2007. "A monopolistic-competition model of international trade with external economies of scale," The North American Journal of Economics and Finance, Elsevier, vol. 18(1), pages 77-91, February.
    19. Dluhosch, Barbara, 2006. "Intraindustry trade and the gains from fragmentation," The North American Journal of Economics and Finance, Elsevier, vol. 17(1), pages 49-64, March.
    20. Ando, Mitsuyo, 2006. "Fragmentation and vertical intra-industry trade in East Asia," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 257-281, December.
    21. E. C. H. Veendorp, 1991. "Entry Deterrence, Divisionalization, and Investment Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 297-307.
    22. Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
    23. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(4), pages 951-977, November.
    24. Lee, Jaerang & Wong, Kar-yiu, 2005. "Vertical integration and strategic trade policies," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 93-117, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Ansgar F. Quint & Jonas F. Rudsinske, 2024. "Asymmetric general oligopolistic equilibrium," The World Economy, Wiley Blackwell, vol. 47(3), pages 1167-1190, March.
    2. Beladi Hamid & Chakrabarti Avik & Hollas Daniel, 2019. "Myopic Mergers across Borders with Incomplete Information in GOLE," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-4, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 951-977, November.
    2. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
    3. Antonio Tesoriere, 2021. "Drastic innovation reduces firms’ incentives to create divisions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 971-994, October.
    4. Chen, Yi & Jungbauer, Thomas & Wang, Zhe, 2023. "The strategic decentralization of recruiting," Journal of Economic Theory, Elsevier, vol. 209(C).
    5. Hamid Beladi & Avik Chakrabarti & Sugata Marjit, 2015. "Cross-border Mergers and Privatization," Working Papers 0147eco, College of Business, University of Texas at San Antonio.
    6. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-533, May.
    7. Corchon, Luis C. & Gonzalez-Maestre, Miguel, 2000. "On the competitive effects of divisionalization," Mathematical Social Sciences, Elsevier, vol. 39(1), pages 71-79, January.
    8. Arijit Mukherjee & Umut Erksan Senalp, 2021. "Firm‐productivity and cross border merger," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 838-859, September.
    9. Ziss, Steffen, 1999. "Divisionalization and strategic managerial incentives in oligopoly under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1163-1187, November.
    10. 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.
    11. Luca Lambertini & Giuseppe Pignataro, 2019. "On the social (sub)optimality of divisionalization under product differentiation," Journal of Economics, Springer, vol. 128(3), pages 225-238, December.
    12. Duarte Brito & Margarida Catalão‐Lopes, 2019. "Are Larger Merger Synergies Bad News for Consumers? Endogenous Post‐Merger Internal Organization," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1728-1756, October.
    13. 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.
    14. Gonzalez-Maestre, Miguel & Lopez-Cunat, Javier, 2001. "Delegation and mergers in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1263-1279, September.
    15. Rudy Colacicco, 2015. "Ten Years Of General Oligopolistic Equilibrium: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 965-992, December.
    16. Heywood, John S. & McGinty, Matthew, 2011. "Cross-border mergers in a mixed oligopoly," Economic Modelling, Elsevier, vol. 28(1-2), pages 382-389, January.
    17. Marin, Dalia & Verdier, Thierry, 2014. "Corporate hierarchies and international trade: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(2), pages 295-310.
    18. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2013. "Cross-border mergers in vertically related industries," European Economic Review, Elsevier, vol. 59(C), pages 97-108.
    19. Huck, Steffen & Knoblauch, Vicki & Muller, Wieland, 2003. "On the profitability of collusion in location games," Journal of Urban Economics, Elsevier, vol. 54(3), pages 499-510, November.
    20. Schymik, Jan Simon, 2015. "Trade, Technologies, and the Evolution of Corporate Governance," Discussion Papers in Economics 24871, University of Munich, Department of Economics.

    More about this item

    Keywords

    General equilibrium; Oligopoly; International trade; Comparative advantage; Divisionalization; Staggered competition;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    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:eee:inecon:v:116:y:2019:i:c:p:50-57. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.