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In-House Competition, Organizational Slack and the Business Cycle

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Author Info
Kerschbamer, Rudolf
Tournas, Yanni
Abstract

This paper analyses the impact of variations of product demand on the amount of internal slack in multi-plant firms in a model in which facilities can produce output at a privately known cost up to a previously-determined capacity level. In such a model, the amount of slack in the firm is shown to be pro-cyclical. Indeed, as capacity constraints become tighter in booms, slack increases in booms, because the power of in-house competition is reduced, while the opposite is true in downturns. Also, in downturns the firm may use high-cost facili-ties even when low-cost plants are not running at capacity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2557.

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Date of creation: Sep 2000
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Handle: RePEc:cpr:ceprdp:2557

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Related research
Keywords: Capacity; Competition; Demand Fluctuations; Slack;

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Find related papers by JEL classification:
D20 - Microeconomics - - Production and Organizations - - - General
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

References listed on IDEAS
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  19. repec:cup:macdyn:v:2:y:1998:i:3:p:322-44 is not listed on IDEAS
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  24. Aghion, Philippe & Saint-Paul, Gilles, 1998. "VIRTUES OF BAD TIMES Interaction Between Productivity Growth and Economic Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 322-344, September. [Downloadable!]
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