DIVISIONALIZATION IN VERTICAL STRUCTURES

Ramón Faulí-Oller (), Lluis Bru and Jose Ordoñez de Haro
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Ramón Faulí-Oller: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: We study the incentives to create divisions by a firm once it is taken into account the vertical structures of an industry. Downstream firms, that must buy an essential input to upstream firms, may create divisions. Divisionalization reduces their bargaining power against upstream firms. This effect must be weighted against the usual incentive to divisionalize, namely the increase in the share of the final market that a firm obtains through it. We show that incentives to divisonalize are severely reduced when compared with the standard results, and that even sometimes firms choose not to divisionalize at all. The paper also shows the implications of the former analysis on the internal organization of firms and on the incentives to vertically integrate.

Pages: 21 pages
Date: 2001-11
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Citations: View citations in EconPapers (2)

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2001-28.pdf Fisrt version / Primera version, 2001 (application/pdf)

Related works:
Working Paper: Divisionalization in Vertical Structures (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2001-28

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