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Organizational design of multi-product multi-market firms

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  • Joaquín Coleff

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    Abstract

    In this paper, we seek to understand how a multi-product multi-market firm (for example, a multinational firm) designs its organizational structure and compensation scheme when its profitability is conditioned by how market information flows within the company. By modifying its organizational structure–centralizing or decentralizing decision making–and changing the weights of its compensation scheme, the firm can shape how information flows and is represented, changing the firm’s profitability. We find that, when being multi-product (having to allocate a scarce resource between markets), the headquarters links the organizational design of decision rights between different product markets. The headquarters decentralizes decision rights in products with higher returns to product differentiation while it centralizes decision rights in products with lower returns to product differentiation. As centralization is complementary with product standardization and decentralization is complementary with product differentiation, the organizational design conditions the firm’s market policy. The relation among product’s decision rights remains even when the headquarters cannot control how local managers allocate resources in their own local divisions. Our results are robust to different generalizations. Our paper therefore, contributes to the literature on organizational design by analyzing the case of multi-product multi-market firms.

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    File URL: http://e-archivo.uc3m.es/bitstream/10016/12055/1/we1122.pdf
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    Bibliographic Info

    Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1122.

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    Date of creation: May 2011
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    Handle: RePEc:cte:werepe:we1122

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    Related research

    Keywords: : Multinational; Multi-product; Organization Design; Resource Scarcity; Cheap Talk;

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    1. Ying Chen & Navin Kartik & Joel Sobel, 2008. "Selecting Cheap-Talk Equilibria," Econometrica, Econometric Society, vol. 76(1), pages 117-136, 01.
    2. Alonso, Ricardo & Dessein, Wouter & Matouschek, Niko, 2006. "When Does Coordination Require Centralization?," CEPR Discussion Papers 5802, C.E.P.R. Discussion Papers.
    3. Dessein, Wouter & Garicano, Luis & Gertner, Robert, 2007. "Organizing for Synergies," CEPR Discussion Papers 6019, C.E.P.R. Discussion Papers.
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