Divide And Conquer: On The Profitability Of Forming Independent Rival Divisions
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.
Year of publication: |
1993-12
|
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Authors: | Polasky, Stephen |
Institutions: | Department of Economics, Boston College |
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