Strategic spin-offs of input divisions

Research output: Journal PublicationsJournal Article (refereed)

13 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)977-993
Number of pages17
JournalEuropean Economic Review
Volume50
Issue number4
DOIs
Publication statusPublished - 1 Jan 2006

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Spin-offs
Spin-off
Competitors
Integrated
Negative externalities
Trigger

Keywords

  • Commitment effect
  • Multilateral negotiations
  • Spin-offs
  • Successive Cournot oligopoly

Cite this

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title = "Strategic spin-offs of input divisions",
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Strategic spin-offs of input divisions. / LIN, Ping.

In: European Economic Review, Vol. 50, No. 4, 01.01.2006, p. 977-993.

Research output: Journal PublicationsJournal Article (refereed)

TY - JOUR

T1 - Strategic spin-offs of input divisions

AU - LIN, Ping

PY - 2006/1/1

Y1 - 2006/1/1

N2 - 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.

AB - 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.

KW - Commitment effect

KW - Multilateral negotiations

KW - Spin-offs

KW - Successive Cournot oligopoly

UR - http://commons.ln.edu.hk/sw_master/2399

U2 - 10.1016/j.euroecorev.2004.12.001

DO - 10.1016/j.euroecorev.2004.12.001

M3 - Journal Article (refereed)

VL - 50

SP - 977

EP - 993

JO - European Economic Review

JF - European Economic Review

SN - 0014-2921

IS - 4

ER -