On the competitive effects of divisionalization
In this paper, we assume that firms can create independent divisions which compete in quantities in a homogeneous good market. Assuming complete information, identical firms and constant returns to scale, we prove the following: 1) Subgame Perfect Nash Equilibrium (SPNE) implies Perfect Competition if the number of firms is beyond some critical Level 2) This Level is small (sometimes one) under reasonable circumstances. Assuming a fixed cost per firm, SPNE implies that even if this cost is arbitrarily small and the number of potential firms is arbitrary Large, 3) the number of active firms is small (sometimes a monopoly) and 4) the total number of divisions is bounded above. This implies that the market under consideration is a Natural Oligopoly. Next we study a model in which there is both a fixed cost and an upper bound on the maximum number of divisions which can be created. We show that 5) when this upper bound tends to infinity and the fixed cost tends to zero, SPNE may imply either Perfect Competition or a Natural Oligopoly. Finally 6) it is shown that the above results hold under incomplete information.
|Date of creation:||Jun 1994|
|Date of revision:|
|Publication status:||Published by Ivie|
|Contact details of provider:|| Postal: |
Phone: +34 96 319 00 50
Fax: +34 96 319 00 55
Web page: http://www.ivie.es/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ivi:wpasad:1994-10. 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: (Departamento de Edición)
If references are entirely missing, you can add them using this form.