Cost Hetrogeneity and Strategic Divisionalization

Kazumichi, Iwasa and Toru, Kikuchi (2007): Cost Hetrogeneity and Strategic Divisionalization.

Abstract

In this note, we consider a simple duopoly environment in which two parent firms compete in a market. We assume that there are cost differentials between these two parent firms. The parent firms' choices of divisionalization are modeled as a two-stage game. It will be shown that the number of divisions of a parent firm with a cost advantage (i.e., lower marginal costs) is relatively large. The results imply that the cost advantage of one parent firm will be magnified through divisionalization decisions.

• Item Type: MPRA Paper
• Language: English
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms