On the competitive effects of divisionalization

Corchón, Luı́s C.; González-Maestre, Miguel

doi:10.1016/s0165-4896(98)00047-x

Cited by 28 publications

(16 citation statements)

References 18 publications

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“…3 Here I consider divisionalization in a context where two parent firms also decide on the allocation of cost reducing investments over their divisions. This specification traces back to a traditional look on the 2 A similar result is in Corchón and González-Maestre (2000). 3 See, for instance, Ziss (1998) and González-Maestre (2001).…”

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confidence: 75%

Allocating Cost Reducing Investments Over Competing Divisions

Tesoriere

2007

SSRN Journal

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This paper examines a three-stage model of divisionalization where, first, two parent firms create independent units, second, the parent firms allocate cost reduction levels over these units, and third, the resulting units compete in a Cournot market given their current costs of production. The introduction of the cost reduction phase is shown to reduce the incentives toward divisionalization severely, relative to other existing models. Namely, the scope for divisionalization in equilibrium reduces as the marginal cost of the cost reducing investment decreases, and eventually vanishes. A second-best welfare analysis shows that, for any given market structure, the equilibrium investment decisions of the parent firms are socially optimal. In addition, to no divisionalization outcome is sustainable in equilibrium only if it is socially optimal.

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confidence: 75%

Allocating Cost Reducing Investments Over Competing Divisions

Tesoriere

2007

SSRN Journal

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“…13 See Proposition 1 in Corchón and González-Maestre (2000) for a similar result but with variable degree of concavity.…”

Section: Welfare Analysismentioning

confidence: 88%

“…However, the equilibrium outcomes are not equivalent. In particular, under linear demand and cost functions, perfect competition is reached as a subgame perfect Nash equilibrium (SPNE) with only two firms in the divisionalization game (see Corchón, 1991, andCorchón andGonzález-Maestre, 2000), while in the delegation game this outcome is only approached as the number of firms tends to infinity (see Sklivas, 1987).…”

Section: Introductionmentioning

confidence: 99%

Divisionalization and Delegation in Oligopoly

González-Maestre¹

2000

Economics Manag Strategy

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We consider a model where oligopolistic firms create independent divisions or franchises, which subsequently delegate output decisions to managers. We show that the number of firms required to make divisionalization privately profitable is greater in our model than in previous pure divisionalization models. However, in contrast with pure delegation models, we show that the subgame perfect Nash equilibrium approaches perfect competition as divisionalization costs tends to zero, even with a small fixed number of firms.

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“…Kogut and Kulatilaka (1994), Rob and Vettas (2003), Choi and Davidson (2004) and Mukherjee (2008) explain why a firm sells in a foreign market from its domestic and foreign plants. Schwartz and Thompson (1986), Baye et al (1996), Yuan (1999) and Corchon and Gonzales-Maestre (2000) show how strategic advantage may encourage firms to create competition in the oligopolistic final goods markets. In contrast, bi-sourcing in our analysis neither creates competition in the bi-sourced firm's market nor considers production in multiple plants by the bi-sourced firm; rather it reduces rent extraction by the outside input supplier.…”

Section: Introductionmentioning

confidence: 99%