Divisionalization with spatial differentiation

This paper assumes that firms can create independent divisions which compet e in a market where the product is spatially differentiated. Our first resu lt is that if the number of firms is exogenous and higher than some critica l level, then the symmetric subgame perfect equilibrium converges to perfec t competition when the cost of divisionalization converges to zero. Compari sons between the equilibrium level of divisionalization and the socially ef ficient are also obtained in this context. On the other hand, if we assume free entry and a fixed cost per firm, then the subgame perfect equilibrium implies, in some cases, a Natural Oligopoly or Monopoly. (C) 2001 Elsevier Science B.V. All rights reserved.