On the competitive effects of divisionalization

In this paper, we assume that firms can create independent divisions which compete in quantities in a homogeneous good market. Assuming identical firm s and constant returns to scale, we prove that the strategic interaction of firms yields Perfect Competition if the number of firms is beyond some cri tical level. Assuming a fixed cost per firm and an upper bound on the maxim um number of divisions, we show that when this upper bound tends to infinit y and the fixed cost tends to zero, market equilibrium may yield either Per fect Competition or a Natural oligopoly. (C) 2000 Elsevier Science B.V. All rights reserved.