Liquidation value of productive assets and product differentiation

Simone Boccaletti and Vittoria Cerasi

No 483, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This study examines the choice of individual companies to adapt productive assets (PAs) to specific production. To soften competition, companies may modify their assets to increase product differentiation. However, this decision alters the liquidation value of the assets in the case of bankruptcy for the presence of redeployment costs (larger for specialized assets) faced by potential buyers. We determine the equilibrium level of specialization of PAs, pointing to a novel trade-off between product market differentiation and the resale value of PAs. We find that industry entry and redeployment costs, together with the number of potential bidders in the second-hand market of PAs are important factors in explaining the degree of product differentiation.

Keywords: Asset Specificity; Horizontal Differentiation; Bankruptcy; Second-hand market of productive assets. (search for similar items in EconPapers)
JEL-codes: G32 G33 L11 (search for similar items in EconPapers)
Pages: 26
Date: 2021-10, Revised 2021-10
New Economics Papers: this item is included in nep-com and nep-ind
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