A Model of the Effect of Conglomeration and Risk-Aversion on Pricing: A Comment

Bradburd (1980) analyzed the effects on pricing of policy of a monopolistic subsidiary caused by a conglomerate merger. His model is based on rather limiting assumptions concerning profit variance, unit costs and price behavior. Some of the profit stream analysis is inappropriate. Jagpal and Brick o...

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Bibliographic Details
Published in:The Journal of industrial economics 1982-03, Vol.30 (3), p.327-333
Main Authors: Jagpal, Harsharanjeet S., Brick, Ivan E.
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Bricks
Conglomerate mergers
Conglomerates
Cost functions
Economic models
Economic theory
Economic uncertainty
Effects
Expected utility
Industrial economics
Market prices
Monopolies
Monopolistic competition
Price functions
Pricing
Risk aversion
Subsidiaries
Unit costs
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Summary:Bradburd (1980) analyzed the effects on pricing of policy of a monopolistic subsidiary caused by a conglomerate merger. His model is based on rather limiting assumptions concerning profit variance, unit costs and price behavior. Some of the profit stream analysis is inappropriate. Jagpal and Brick offer a more general approach that allows for more uncertainties in policy and profit maximization. They found that when homogeneous risk aversion exists between parent company and subsidiary, conglomerate merger occurs only if profit streams are negatively correlated. Merger is more likely under heterogeneous risk-aversion, even when profit streams are positively correlated.
ISSN:0022-1821
1467-6451
DOI:10.2307/2098223