Strategic spin-offs of input divisions
Document Type
Journal article
Source Publication
European Economic Review
Publication Date
1-1-2006
Volume
50
Issue
4
First Page
977
Last Page
993
Keywords
Commitment effect, Multilateral negotiations, Spin-offs, Successive Cournot oligopoly
Abstract
When a downstream producer enters backward into the input market, a "helping the rivals effect" exists: Such entry hurts the firm's downstream business as it increases upstream competition and thus benefits its rival downstream firms. This negative externality prevents the newly-created upstream unit from expanding. A spin-off enables the firm to credibly expand in the input market, thereby forcing its upstream competitors to behave less aggressively. Spin-offs occur in equilibrium if and only if the number of downstream firms exceeds a threshold level. When there is more than one integrated firm, a spin-off by a firm can trigger spin-offs by others that would not occur otherwise.
DOI
10.1016/j.euroecorev.2004.12.001
Print ISSN
00142921
E-ISSN
1873572X
Publisher Statement
Copyright © 2005 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Lin, P. (2006). Strategic spin-offs of input divisions. European Economic Review, 50(4), 977-993. doi: 10.1016/j.euroecorev.2004.12.001