Cross-Subsidization, Cost Allocation, and Tacit Coordination

Review of Accounting Studies 1998, Volume 2, Issue 3, pp 265-293

University of Alberta School of Business Research Paper No. 2013-663

Posted: 2 Jul 2013

Date Written: June 1, 1996

Abstract

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.

Suggested Citation

Hughes, John and Kao, Jennifer L., Cross-Subsidization, Cost Allocation, and Tacit Coordination (June 1, 1996). Review of Accounting Studies 1998, Volume 2, Issue 3, pp 265-293, University of Alberta School of Business Research Paper No. 2013-663, Available at SSRN: https://ssrn.com/abstract=2276056

Jennifer L. Kao

Independent

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
327
PlumX Metrics