Cross-Subsidization, Cost Allocation, and Tacit Coordination

Cross-Subsidization, Cost Allocation, and Tacit Coordination This paper considers the prospect that multiproduct firms facing each other in separate markets might tacitly coordinate their production through strategic common service cost allocations and mutually benefit from such action as a consequence. Our analysis suggests that decentralization cum tacit coordination may be possible in equilibrium, with or without public disclosure of allocation choices. In turn, tacit coordination may contribute to explanations for multiproduct firms' decisions to decentralize. The implications for trade oversight bodies are ambiguous. While tacit coordination results in an anti-competitive distortion toward monopolies, it also induces greater specialization which reduces the diseconomies of scope. Review of Accounting Studies Springer Journals

Cross-Subsidization, Cost Allocation, and Tacit Coordination

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Kluwer Academic Publishers
Copyright © 1998 by Kluwer Academic Publishers
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
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