The consequences of endogenous timing for diversification strategies of multimarket firms

Silke Neubauer

No FS IV 97-34, Discussion Papers, various Research Units from WZB Berlin Social Science Center

Abstract: When firms diversify into new markets in spite of the existence of diseconomies of scope, not only firms' profits are affected, but also potential welfare is reduced. Nevertheless, multimarket competition is the outcome of a game when players move simultaneously. A Cournot model is developped where players can choose the timing of their action before deciding over quantities. This helps firms to avoid the inefficiencies that ocur with multimarket competition. Whenever the timing game has an impact on the outcome of the basic game, the consequences for welfare are positive.

Date: 1997
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