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Divisionalization and Delegation in Oligopoly

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  • Miguel González‐Maestre

Abstract

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.

Suggested Citation

  • Miguel González‐Maestre, 2000. "Divisionalization and Delegation in Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 321-338, June.
    • Handle: RePEc:bla:jemstr:v:9:y:2000:i:3:p:321-338
    DOI: 10.1111/j.1430-9134.2000.00321.x
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    1. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
    2. Norton, Seth W, 1988. "An Empirical Look at Franchising as an Organizational Form," The Journal of Business, University of Chicago Press, vol. 61(2), pages 197-218, April.
    3. Fauli-Oller, Ramon & Giralt, Magdalena, 1995. "Competition and Cooperation within a Multidivisional Firm," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 77-99, March.
    4. 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 223-236, March.
    5. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    6. Carlos Barcena-Ruiz, Juan & Paz Espinosa, Maria, 1999. "Should multiproduct firms provide divisional or corporate incentives?," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 751-764, July.
    7. Juan Carlos Barcena‐Ruiz & Maria Paz Espinosa, 1996. "Long‐Term or Short‐Term Managerial Incentive Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 343-359, September.
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    Cited by:

    1. Bhattacharjee Trishita & Pal Rupayan, 2014. "Network Externalities and Strategic Managerial Delegation in Cournot Duopoly: Is There a Prisoners’ Dilemma?," Review of Network Economics, De Gruyter, vol. 12(4), pages 343-353, January.
    2. Faulí-Oller, Ramon & Bru, Lluís & de Haro, José-Manuel Ordóñez, 2001. "Divisionalization in Vertical Structures," CEPR Discussion Papers 3011, C.E.P.R. Discussion Papers.
    3. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    4. Luca Lambertini & Giuseppe Pignataro, 2019. "On the social (sub)optimality of divisionalization under product differentiation," Journal of Economics, Springer, vol. 128(3), pages 225-238, December.
    5. Tsygankova, Marina, 2010. "When is a break-up of Gazprom good for Russia?," Energy Economics, Elsevier, vol. 32(4), pages 908-917, July.
    6. Michiel Bijlsma & Gijsbert Zwart, 2009. "Competition for access; spectrum rights and downstream access in wireless telecommunications," CPB Discussion Paper 123.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Michiel Bijlsma & Gijsbert Zwart, 2009. "Competition for access; spectrum rights and downstream access in wireless telecommunications," CPB Discussion Paper 123, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Neubauer, Silke, 1997. "Interdivisional information sharing: the strategic advantage of knowing nothing," Discussion Papers, Research Unit: Market Dynamics FS IV 97-33, WZB Berlin Social Science Center.
    9. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    10. Michael L. Katz, 2006. "Observable Contracts as Commitments: Interdependent Contracts and Moral Hazard," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 685-706, September.
    11. Marina Tsygankova, 2007. "When is Mighty Gazprom Good for Russia?," Discussion Papers 526, Statistics Norway, Research Department.
    12. Kangsik Choi, 2022. "Delegation in multiproduct downstream firms with heterogeneous channels," Journal of Economics, Springer, vol. 135(1), pages 75-102, January.
    13. Barreda-Tarrazona, Iván & Georgantzís, Nikolaos & Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2016. "Endogenous managerial compensation contracts in experimental quantity-setting duopolies," Economic Modelling, Elsevier, vol. 54(C), pages 205-217.
    14. Rupayan Pal, 2014. "Managerial delegation in monopoly and social welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(4), pages 403-410, December.
    15. repec:cte:werepe:we063910 is not listed on IDEAS

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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