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Journal of Economics

, Volume 128, Issue 3, pp 225–238 | Cite as

On the social (sub)optimality of divisionalization under product differentiation

  • Luca LambertiniEmail author
  • Giuseppe Pignataro
Article
  • 85 Downloads

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.

Keywords

Divisionalization Product differentiation Duopoly 

JEL Classification

L13 L22 L41 

Notes

Acknowledgements

We would like to thank Giacomo Corneo, Flavio Delbono and two anonymous referees for precious comments and suggestions. The usual disclaimer applies.

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of BolognaBolognaItaly

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