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Power Inside the Firm and the Market

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  • Marin, Dalia
  • Verdier, Thierry

Abstract

Recent years have witnessed an enormous amount of reorganization of the corporate sector in the US and in Europe. This paper examines the role of market competition for this trend in corporate reorganization. We find that at intermediate levels of competition the CEO of the corporation decides to have less power inside the firm and to delegate control to lower levels of the firms’ hierarchy. Thus, workers empowerment and the move to flatter firm organizations emerge as an equilibrium when competition is not too tough and not too weak. The model predicts merger waves or waves of outsourcing when countries become more integrated into the world economy as the corporate sector reorganizes in response to an increase in international competition.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 10.

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Date of creation: Jul 2002
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Handle: RePEc:lmu:muenec:10

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Related research

Keywords: monopolistic competition ; corporate reorganisation ; theory of the firm ; allocation of control;

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References

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  1. Patrick Legros & Andrew F. Newman, 2007. "Competing for Ownership," Boston University - Department of Economics - Working Papers Series WP2007-003, Boston University - Department of Economics.
  2. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
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  6. Diego Puga & Daniel Trefler, 2002. "Knowledge creation and control in organizations," Working Papers dpuga-02-01, University of Toronto, Department of Economics.
  7. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Gene Grossman & Elhanan Helpman, 2001. "Integration vs. Outsourcing in Industry Equilibrium," CESifo Working Paper Series 460, CESifo Group Munich.
  9. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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  14. Aghion, Philippe & Tirole, Jean, 1995. "Some implications of growth for organizational form and ownership structure," European Economic Review, Elsevier, vol. 39(3-4), pages 440-455, April.
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Cited by:
  1. Rocco Macchiavello, 2008. "Contractual Institutions, Financial Development and Vertical Integration: Theory and Evidence," Economics Series Working Papers 392, University of Oxford, Department of Economics.
  2. Maria Bas & Juan Carluccio, 2010. "Wage Bargaining and the Boundaries of the Multinational Firm," Working Papers 2010-03, CEPII research center.

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