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Divisional power, intra-firm bargaining and rent-seeking behavior in multidivisional corporations

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Author Info
Ram Mudambi () (Temple University (USA) and University of Reading (UK))
Pietro Navarra () (Università di Messina (ITA) and CPNSS, London School of Economics (USA))

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Abstract

Increasing divisional operational responsibilities and the dispersal of knowledge creating activities within the firm have loosened the traditional hierarchical structure of multi-divisional firms. In this paper we argue that a similar mixture of competition and cooperation that is found in inter-firm relationships now characterizes intra-firm relationships. Our model describes a situation in which divisional managers have their own objectives that may diverge from those of the firm as a whole.Thus, divisional managers are both profit-seekers in creating value that can be appropriated and rent-seekers in attempting to maximize their divisional share of the value created by the firm. The bargaining power of a division to maintain and increase its share of the profits generated by the operations of the firm as whole is crucially determined on its strategic independence.

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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 4 (2004)
Issue (Month): 13 ()
Pages: 1-10
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Handle: RePEc:ebl:ecbull:v:4:y:2004:i:13:p:1-10

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Related research
Keywords: Multi-Divisional Firm; Organization Theory; Bargaining Power;

Find related papers by JEL classification:
D2 - Microeconomics - - Production and Organizations
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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  7. David S. Scharfstein & Jeremy C. Stein, 1997. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," NBER Working Papers 5969, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Raghuram Rajan & Henry Servaes & Luigi Zingales, . "The Cost of Diversity: The Diversification Discount and Inefficient Investment," CRSP working papers 463, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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