Should multiproduct firms provide divisional or corporate incentives?

This paper points out some of the implications of the internal organization of a multiproduct firm for its market conduct. In particular, we study the strategic use of organizational forms based on corporate incentives versus farms based on divisional incentives. The equilibrium internal organization is determined in a model with full information. It is shown that firms provide corporate incentives when goods are substitutes and divisional incentives when goods are complements, and the result holds both in the case of quantity setting and price setting. (C) 1999 Elsevier Science B.V. All rights reserved.