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.
Lambertini L., Pignataro G. (2019). On the social (sub)optimality of divisionalization under product differentiation. JOURNAL OF ECONOMICS, 128(3), 225-238 [10.1007/s00712-019-00669-5].
On the social (sub)optimality of divisionalization under product differentiation
Lambertini L.
Writing – Original Draft Preparation
;Pignataro G.
2019
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.File | Dimensione | Formato | |
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