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The optimal choice of internal decision-making structures in a network industry

Author

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  • Tsuyoshi Toshimitsu

    (School of Economics, Kwansei Gakuin University)

Abstract

Focusing on the role of compatibility between products, we consider the choice of internal decision-making structures—i.e., centralization and decentralization—and its effect on welfare in a network industry where there are horizontally differentiated products associated with network externalities. We demonstrate that if the degree of a network externality is sufficiently large, it is socially optimal to choose decentralization. Furthermore, in the case of consumer ex post expectations, it is optimal for the firm’s owners to choose centralization. However, it is socially preferable given a particular condition.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2017. "The optimal choice of internal decision-making structures in a network industry," Discussion Paper Series 166, School of Economics, Kwansei Gakuin University, revised Sep 2017.
    • Handle: RePEc:kgu:wpaper:166
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    References listed on IDEAS

    as
    1. Milton Harris & Artur Raviv, 2002. "Organization Design," Management Science, INFORMS, vol. 48(7), pages 852-865, July.
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    7. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(4), pages 951-977, November.
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    More about this item

    Keywords

    internal decision-making; centralization; decentralization; network externality; compatibility; multiproduct monopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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