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.
On the social (sub)optimality of divisionalization under product differentiation / Lambertini L.; Pignataro G.. - In: JOURNAL OF ECONOMICS. - ISSN 0931-8658. - STAMPA. - 128:3(2019), pp. 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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