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Divisionalization and Delegation in Oligopoly
Author(s) -
GonzálezMaestre Miguel
Publication year - 2000
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.2000.00321.x
Subject(s) - delegate , delegation , oligopoly , subgame perfect equilibrium , microeconomics , economics , competition (biology) , cournot competition , contrast (vision) , nash equilibrium , mathematical economics , industrial organization , computer science , management , ecology , artificial intelligence , biology , programming language
We consider a model where oligopolistic firms create independent divisions or franchises, which subsequently delegate output decisions to managers. We show that the number of firms required to make divisionalization privately profitable is greater in our model than in previous pure divisionalization models. However, in contrast with pure delegation models, we show that the subgame perfect Nash equilibrium approaches perfect competition as divisionalization costs tends to zero, even with a small fixed number of firms.