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Divisionalization In Vertical Structures

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Author Info
Ramón Faulí-Oller () (Universidad de Alicante)
Lluís Bru () (Universitat de les Illes Balears)
José Manuel Ordóñez de Haro (Universidad de Málaga)
Abstract

We study the incentives to create divisions by a firm once it is taken into account the vertical structures of an industry. Downstream firms, that must buy an essential input to 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 it. We show that incentives to divisonalize are severely reduced when compared with the standard results, and that even sometimes firms choose not to divisionalize at all. The paper also shows the implications of the former analysis on the internal organization of firms and on the incentives to vertically integrate.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2001-28.pdf
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File Function: Fisrt version / Primera version, 2001
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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2001-28.

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Length: 21 pages
Date of creation: Nov 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2001-28

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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.:

  1. Miguel González-Maestre, 2000. "Divisionalization and Delegation in Oligopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(3), pages 321-338, 06. [Downloadable!] (restricted)
    Other versions:
  2. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. 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. [Downloadable!] (restricted)
  4. Huck, Steffen & Konrad, Kai A. & Muller, Wieland, 2001. "Divisionalization in contests," Economics Letters, Elsevier, vol. 70(1), pages 89-93, January. [Downloadable!] (restricted)
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  5. Chemla, Gilles, 2000. "Downstream Competition, Foreclosure, and Vertical Integration," CEPR Discussion Papers 2647, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. G. Chemla, 1999. "Downstream competition, foreclosure, and vertical integration," THEMA Working Papers 99-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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  7. Corts, Kenneth S. & Neher, Darwin V., 2003. "Credible delegation," European Economic Review, Elsevier, vol. 47(3), pages 395-407, June. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Corchon, Luis C. & Gonzalez-Maestre, Miguel, 2000. "On the competitive effects of divisionalization," Mathematical Social Sciences, Elsevier, vol. 39(1), pages 71-79, January. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Joao Carlos Correia Leitao, 2004. "Optimal Divisionalization for Selling Networks of Cable Television Services," Industrial Organization 0403004, EconWPA. [Downloadable!]
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