Divisionalization in Vertical Structures
We study the incentives to firms to create divisions once the vertical structure of an industry is taken into account. Downstream firms, those that must buy an essential input from 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 the process. We show that incentives to divisionalize are severely reduced when compared with the standard results, and even that sometimes firms choose not to divisionalize at all. This Paper also shows the implications of the former analysis on the internal organization of firms and on the incentives to vertically integrate.
|Date of creation:||Oct 2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Luis Corchón & Miguel González-Maestre, 1994.
"On the competitive effects of divisionalization,"
Working Papers. Serie AD
1994-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
- Rey, Patrick & Tirole, Jean, 2003.
"A Primer on Foreclosure,"
IDEI Working Papers
203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
- Corts, Kenneth S. & Neher, Darwin V., 2003. "Credible delegation," European Economic Review, Elsevier, vol. 47(3), pages 395-407, June.
- Richard J. Sexton, 2000. "Industrialization and Consolidation in the U.S. Food Sector: Implications for Competition and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1087-1104.
- Huck, Steffen & Konrad, Kai A. & Muller, Wieland, 2001.
"Divisionalization in contests,"
Elsevier, vol. 70(1), pages 89-93, January.
- Chemla, Gilles, 2000. "Downstream Competition, Foreclosure, and Vertical Integration," CEPR Discussion Papers 2647, C.E.P.R. Discussion Papers.
- Miguel González-Maestre, 2000.
"Divisionalization and Delegation in Oligopoly,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 9(3), pages 321-338, 06.
- 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.
- G. Chemla, 1999.
"Downstream competition, foreclosure, and vertical integration,"
THEMA Working Papers
99-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Chemla, G., 1999. "Downstream Competition, Foreclosure, and Vertical Integration," Papers 99-18, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
- Luis Corchón, 1991.
"Oligopolistic Competition Among Groups,"
Working Papers. Serie AD
1991-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3011. 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: ()
If references are entirely missing, you can add them using this form.