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Competition Within Firms

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  • Lisa Bruttel
  • Simeon Schudy

Abstract

We investigate the role of incentives set by a parent firm for competition among its subsidiaries. In a Cournot experiment, four subsidiaries of the same parent operate in the same market. Parents earn a specific share of the joint profit, and can choose how to distribute the remaining surplus (or loss). Results show that parents allocating profits equally among their subsidiaries reach outcomes close to collusion. However, almost half of the parent firms employ a proportional sharing rule instead. These groups end up with profits around the Cournot level.

Suggested Citation

  • Lisa Bruttel & Simeon Schudy, 2012. "Competition Within Firms," Journal of Competition Law and Economics, Oxford University Press, vol. 8(1), pages 167-185.
    • Handle: RePEc:oup:jcomle:v:8:y:2012:i:1:p:167-185.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhs004
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    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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