Organizational Structure of Corporate Groups in the Presence of Positive Cost Externalities

Emilie Dargaud (), Mickaël Lallouche () and Petros Sekeris
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Emilie Dargaud: Université Lumière Lyon 2, CNRS, Université Jean Monnet Saint Etienne, EMLyon Business School, GATE, 69007 Lyon, France
Mickaël Lallouche: Université Lumière Lyon 2, Université Claude Bernard Lyon 1, ERIC, 69007, Lyon, France

No 2520, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We analyze corporate groups managing horizontally differentiated, substitutable firms that share cost externalities yet compete strategically. Using a model with two groups each owning two firms producing goods under distinct brands, we study the choice between centralized and decentralized management. Our results show that when cost externalities are low, decentralization can emerge as equilibrium despite centralization being Pareto superior, due to strategic incentives resembling the “merger paradox”. With stronger cost synergies, centralization dominates, though product differentiation creates multiple equilibria. The findings refine our understanding of corporate organizational design in imperfectly competitive markets.

Keywords: Organizational design; Strategic delegation; Horizontal differentiation (search for similar items in EconPapers)
JEL-codes: D21 L13 L22 L25 (search for similar items in EconPapers)
Date: 2025
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