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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Keywords

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

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