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| Author: | Chen, Y. |
| Title: | Multidimensional signalling and diversification |
| Journal: | RAND Journal of Economics
1997 : SPRING, VOL. 28:1, p. 168-187 |
| Index terms: | SIGNALING DIVERSIFICATION COMPANIES INFORMATION |
| Language: | eng |
| Abstract: | This paper explains why firms diversify, by presenting a model in which a firm has a private information about its own cost and the demand function of the market on which it competes with other companies. Diversification can be used by the informed firm to signal private information in order to obtain advantages in competition, which is an important motive for a firm to diversify. With some empirical observations, the signalling explanation of diversification is consistent. In the model where both signals and private information are multidimensional, natural signalling is also studied. |
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