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Inefficient Diversification in Multimarket Oligopoly with Diseconomies of Scope

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  • Dixon, Huw David

Abstract

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, which enable them to enter technologically related markets, thereby increasing competition. This strategic motive leads to inefficiency in production, however, due to diseconomies of scope. This paper shows that the welfare gain from increased competition can be more than offset by the inefficiency in production, which may lead to lower welfare than in the case of pure monopoly.

Suggested Citation

  • Dixon, Huw David, 1992. "Inefficient Diversification in Multimarket Oligopoly with Diseconomies of Scope," CEPR Discussion Papers 732, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:732
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    Cited by:

    1. 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.
    2. 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.
    3. 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).
    4. Davide Vannoni, 2000. "The diversifield firm: non formal theories versus formal models," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2000(106).
    5. 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).
    6. 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).
    7. L. Colombo & P. Labrecciosa & L. Lambertini, 2005. "A Chicken Game of Intraindustry Trade," Working Papers 548, Dipartimento Scienze Economiche, Universita' di Bologna.
    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

    Keywords

    Diseconomies of Scope; Diversification; Oligopoly;

    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

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