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Interdivisional information sharing: the strategic advantage of knowing nothing

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  • Neubauer, Silke

Abstract

Divisional managers of multiproduct firms often only have precise information about market conditions of their own market. They may have expectations about the demand function of markets served by other divisions. When divisional profits are linked due to interrelated costs or demand parameters, it may be advantageous for a firm to provide each division with information about the other division's demand parameters. I study the incentives of owners to implement such an information structure and the value of intrafirm information sharing in a two firm - two market setting where there are interdivisional cost linkages. It is shown, that the value of bilateral information consists of a (positive) efficiency and a (negative) revenue effect, the weight of which depends on the incentive scheme used to evaluate managers. Regardless of managers' incentive scheme, owners of both firms always choose interdivisional information sharing, even if profits are lower than in a situation of noninformation.

Suggested Citation

  • 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).
  • Handle: RePEc:zbw:wzbmdy:fsiv9733
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    1. Miguel González-Maestre, 2000. "Divisionalization and Delegation in Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 321-338, June.
    2. Richard N. Clarke, 1983. "Collusion and the Incentives for Information Sharing," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 383-394, Autumn.
    3. Esther Gal-Or, 1988. "The Advantages of Imprecise Information," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 266-275, Summer.
    4. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-343, March.
    5. 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.
    6. Alfred D. Chandler, 1969. "Strategy and Structure: Chapters in the History of the American Industrial Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530090, January.
    7. David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters,in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446 World Scientific Publishing Co. Pte. Ltd..
    8. Jean-Pierre Ponssard, 1976. "On the Concept of the Value of Information in Competitive Situations," Management Science, INFORMS, vol. 22(7), pages 739-747, March.
    9. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
    10. 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).
    11. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
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