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Divide and conquer On the profitability of forming independent rival divisions

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  • Polasky, Stephen

Abstract

In this paper, a two-stage model is presented in which firms chose market structure in stage one and play a Cournot game in the second stage. In a one-period game, if a single firm is given a choice in stage one, it will chose to from independent rival divisions rather than remained as a unified whole. The sub game perfect equilibrium outcome of this game is the same as in a Stackleberg game in which one firm commits to quantity prior to the simultaneous choice of quantity by its rivals. In a multi-period game, with firms making alternating market structure choices, it is possible to generate endogenous cyclical fluctuations in market concentration.
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  • Polasky, Stephen, 1992. "Divide and conquer On the profitability of forming independent rival divisions," Economics Letters, Elsevier, vol. 40(3), pages 365-371, November.
    • Handle: RePEc:eee:ecolet:v:40:y:1992:i:3:p:365-371
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