We consider a model where oligopolistic firms create independent divisions
or franchises, which subsequently delegate output decisions to managers. We
show that the number of firms required to make divisionalization privately
profitable is greater in our model than in previous pure divisionalization
models. However, in contrast with pure delegation models, we show that the
subgame perfect Nash equilibrium approaches perfect competition as divisio
nalization costs tends to zero, even with a small fixed number of firms.