Predation, Firm-Specific Assets and Diversification

David T Levy

Journal of Industrial Economics, 1989, vol. 38, issue 2, 227-33

Abstract: This study examines the relationship between diversification and predation, focusing on the firm's investments in sunk cost assets. Unlike the single product firm, the diversified firm may employ assets that are not sunk to a product. The ability to transfer these assets among uses or locations may lower the costs of predation. The "long-purse" and "multimarket reputation" may be viewed as special cases of this phenomenon. The likelihood of predation may be reduced when the diversified firm is the target, since it may be able to transfer assets back into an industry when the predator raises the price. Copyright 1989 by Blackwell Publishing Ltd.

Date: 1989
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