Abstract
The following chapters deal with multi-stage games, in which firms are allowed to choose organizational devices before Cournot competition takes place. All games build on the same basic model, a two firm, two market model with cost linkages between markets. Therefore, the basic model will be introduced in this chapter and will be applied when developing the organizational games.
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Bulow/Geanakoplos/Klemperer (1985) use a similar approach to model (dis) economies of scope, but consider quadratic unit-costs of each single product.
This does not alter the qualitative results obtained. The resulting cost function is also used by Dixon (1992) when he considers two multiproduct firms.
In the following, I will only talk about joint cost, which also implies the possibility of negative g (positive spillovers).
See Baumol / Panzar /Willig (1982) for the concept of (dis)economies of scone.
See Porter (1985), p. 418.
See Westland (1992). For other examples involving economies of scope see for example Teece (1982), p. 53.
For example, the effectiveness of providing common services such as a personnel department, a computer department or managerial supervision utilized by multiple departments may decline as the use of other departments increases. See Gal-Or (1993b), p. 388, for this argument. See also Zimmermann (1979), p. 510, who talks about opportunity costs when common services (e.g. WATS telephone line) are employed by several users (degradation, delay etc.), Teece (1982), p. 53, alluding to congestion effects of know-how as a common input factor, or Westland (1992) for congestion effects in information systems.
Scherer / Ross (1990), p. 103 – 104 further hint at psychological studies that predict that workers working in big firms are less satisfied with their job than workers in small firms. Therefore, big firms often pay a wage premium to their workers. Other reasons for diseconomies of scope are costs of control and coordination, which rise in the scope of a firm (managerial diseconomies).
If firms face economies of scope, it is clear that asymmetrical solutions are not probable and would never be preferred to symmetrical solutions: firms gain by diversification and two market production.
In chapter 5 it will be shown that this strategy might be the outcome of an extended game with endogenous timing.
See Farrel (1987) for the coordination of players in “battle of sex” games. In a two player context, the ability to pre-communicate is a realistic assumption. (However, as noted by Fudenberg/ Tirole (1995), p. 21 – 22, it would become more and more difficult as the number of the players involved increases.)
This assumption is possible as costs are (ex ante) equal for both firms.
See Appendix A.1.
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© 2001 Deutscher Universitäts-Verlag GmbH, Wiesbaden
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Neubauer, S. (2001). The basic game with centralized decision making. In: Multimarket Contact and Organizational Design. Beiträge zur betriebswirtschaftlichen Forschung, vol 97. Deutscher Universitätsverlag, Wiesbaden. https://doi.org/10.1007/978-3-663-05979-0_3
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DOI: https://doi.org/10.1007/978-3-663-05979-0_3
Publisher Name: Deutscher Universitätsverlag, Wiesbaden
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