On the social (sub)optimality of divisionalization under product differentiation

Luca Lambertini () and Giuseppe Pignataro

Journal of Economics, 2019, vol. 128, issue 3, No 2, 225-238

Abstract: Abstract We revisit the interplay between differentiation and divisionalization in a duopoly version of Ziss (Econ Lett 59:133–138, 1998). We model divisionalization as a discrete problem to prove that (i) firms may choose not to become multidivisional; and (ii) there may arise asymmetric outcomes in mixed strategies, due to the existence of multiple symmetric equilibria. If industry-wide divisionalization is the unique equilibrium, it can be socially efficient provided goods are almost perfect substitutes. Even small degrees of differentiation may suffice to make industry-wide divisionalization socially desirable because of the prevalence of consumers’ taste for variety over the replication of fixed costs.

Keywords: Divisionalization; Product differentiation; Duopoly (search for similar items in EconPapers)
JEL-codes: L13 L22 L41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:128:y:2019:i:3:d:10.1007_s00712-019-00669-5

DOI: 10.1007/s00712-019-00669-5

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