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Economics Research International
Volume 2013 (2013), Article ID 352847, 11 pages
http://dx.doi.org/10.1155/2013/352847
Research Article

Sequential Divestiture and Firm Asymmetry

School of Business, The University of Hong Kong, Hong Kong

Received 13 November 2012; Revised 22 January 2013; Accepted 23 January 2013

Academic Editor: Jean Paul Chavas

Copyright © 2013 Wen Zhou. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Simple Cournot models of divestiture tend to generate incentives to divest which are too strong, predicting that firms will break up into an infinite number of divisions resulting in perfect competition. This paper shows that if the order of divestitures is endogenized, firms will always choose sequential, and hence very limited, divestitures. Divestitures favor the larger firm and the follower in a sequential game. Divestitures in which the larger firm is the follower generate greater industry profit and social welfare, but a smaller consumer surplus.