Liquidation value of productive assets and product differentiation

26 Pages Posted: 25 Oct 2021

See all articles by Simone Boccaletti

Simone Boccaletti

Università degli Studi di Milano-Bicocca - Department of Business Administration, Finance, Management and Law

Vittoria Cerasi

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Date Written: October 21, 2021

Abstract

This study examines the choice of individual companies to adapt productive assets (PAs) to specific production. To soften competition, companies may modify their assets to increase product differentiation. However, this decision alters the liquidation value of the assets in the case of bankruptcy for the presence of redeployment costs (larger for specialized assets) faced by potential buyers. We determine the equilibrium level of specialization of PAs, pointing to a novel trade-off between product market differentiation and the resale value of PAs. We find that industry entry and redeployment costs, together with the number of potential bidders in the second-hand market of PAs are important factors in explaining the degree of product differentiation.

Keywords: Asset Specificity; Horizontal Differentiation; Bankruptcy; Second-hand market of productive assets

JEL Classification: G32, G33, L11

Suggested Citation

Boccaletti, Simone and Cerasi, Vittoria, Liquidation value of productive assets and product differentiation (October 21, 2021). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 483, Available at SSRN: https://ssrn.com/abstract=3947398

Simone Boccaletti

Università degli Studi di Milano-Bicocca - Department of Business Administration, Finance, Management and Law ( email )

Edificio U7, IV piano
via Bicocca degli Arcimboldi
Milan, 8 - 20126
Italy

Vittoria Cerasi (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy
+39-02-64485821 (Phone)
+39-02-64485878 (Fax)

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