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Divide And Conquer: On The Profitability Of Forming Independent Rival Divisions

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  • Stephen Polasky

    (Department of Economics, Boston College)

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.

Suggested Citation

  • Stephen Polasky, 1993. "Divide And Conquer: On The Profitability Of Forming Independent Rival Divisions," Boston College Working Papers in Economics 210, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:210
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