Divisionalization in markets with hetergeneous goods

Abstract

This paper assumes that firms can create independent divisions which compete in a market where the product is spatially differentiated. Our first result is that if the number of firms is exogenous and higher than some critical level, then Perfect Competition is the only Subgarne Perfect EquiLibrium. On the other hand, if we assume free entry and a fixed cost per firm, depending on the relationship between fixed costs and the degree of product differentiation, the equilibrium outcome may be monopoly, oligopoly or monopol istic competition. Moreover, if the fixed cost is sufficientty small, the number of independent sellers will be Lower than in the standard modelwhere divisionaliization is not possible.