S trategic incentives of divestitures of competing conglomerates

We provide an alternative theory of divestiture that relies on product-line complementarities and product market competition. We show that in equilibrium competing conglomerates with complementary product lines have incentives to divest and that such divestitures increase both the prices of all the products and the profits of the parent firms, but reduce total surplus. We further show that if the firms are able to coordinate their divestiture strategies, monopoly prices and profits can be achieved via a non-cooperative pricing game.  2002 Elsevier Science B.V. All rights reserved. JEL classification: L10; L22; L40