Inefficient Diversification in Multimarket Oligopoly with Diseconomies of Scope

Huw Dixon

No 732, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper considers the incentives of oligopolistic firms to diversify into technologically related markets when there are diseconomies of scope. There is a rent-extraction incentive for firms to adopt flexible technologies, which enable them to enter technologically related markets, thereby increasing competition. This strategic motive leads to inefficiency in production, however, due to diseconomies of scope. This paper shows that the welfare gain from increased competition can be more than offset by the inefficiency in production, which may lead to lower welfare than in the case of pure monopoly.

Keywords: Diseconomies of Scope; Diversification; Oligopoly (search for similar items in EconPapers)
JEL-codes: D24 D43 D61 (search for similar items in EconPapers)
Date: 1992-11
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Citations: View citations in EconPapers (5)

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