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- Title
Conglomerate Power without Market Power: The Effects of Conglomeration on a Risk-Averse Quantity-Adjusting Firm.
- Authors
Bradburd, Ralph M.
- Abstract
One of the interesting theoretical questions relating to conglomerate firms is whether conglomeration alone, unaccompanied by market power, can have any impact on firm behavior and market performance. Many of those who argue that conglomeration without market power is behaviorally neutral obtain their results by assuming, implicitly or explicitly, that the firm maximizes profits. Their arguments are quite straightforward: the absence of market power precludes profit-maximizing behavior based on predatory pricing, mutual forbearance, advertising advantages, etc.; and if one assumes a pure conglomerate, among whose subsidiaries' products there are no substitution or complementarity relations, then the necessary condition for maximizing overall conglomerate profits is to maximize each subsidiary's profits by setting its output to the level at which marginal cost equals price, exactly what each subsidiary would have done if it were an independent purely competitive profit-maximizing firm.
- Subjects
CONGLOMERATE corporations; PROFIT maximization; RISK; CORPORATE profits; PRODUCTION (Economic theory); PRICES; PRICING; DIRECT costing; COMPETITION
- Publication
American Economic Review, 1980, Vol 70, Issue 3, p483
- ISSN
0002-8282
- Publication type
Article