Divide And Conquer: On The Profitability Of Forming Independent Rival Divisions

Stephen Polasky

No 210, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: 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.

Date: 1993-12
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Journal Article: Divide and conquer On the profitability of forming independent rival divisions (1992)
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