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Competing in Organizations: Firm Heterogeneity and International Trade

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  • Marin, Dalia
  • Verdier, Thierry

Abstract

This paper develops a theory which investigates how firms’ choice of corporate organization is affecting firm performance and the nature of competition in international markets. We develop a model in which firms’ organisational choices determine heterogeneity across firms in size and productivity in the same industry. We then incorporate these organisational choices in a Krugman cum Melitz and Ottaviano model of international trade. We show that the toughness of competition in a market depends on who - headquarters or middle managers - have power in firms. Furthermore, we propose two new margins of trade adjustments: the monitoring margin and the organizational margin. International trade may or may not lead to an increase in aggregate productivity of an industry depending on which of these margins dominate. Trade may trigger firms to opt for organizations which encourage the creation of new ideas and which are less well adapt to price and cost 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 1933.

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Date of creation: May 2007
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Handle: RePEc:lmu:muenec:1933

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Keywords: international trade with endogenous firm organizations and endogenous toughness of competition; firm heterogeneity; power struggle in the firm;

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References

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  1. Marin, Dalia & Verdier, Thierry, 2008. "Corporate Hierarchies and the Size of Nations: Theory and Evidence," CEPR Discussion Papers 6734, C.E.P.R. Discussion Papers.
  2. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc.
  3. Marin, Dalia, 2006. "A new international division of labor in Europe: Outsourcing and offshoring to Eastern Europe," Munich Reprints in Economics 19229, University of Munich, Department of Economics.
  4. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Nicholas Bloom & John Van Reenen, 2007. "Measuring and Explaining Management Practices Across Firms and Countries," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1351-1408, November.
  6. Paula Bustos, 2005. "The impact of trade liberalization on skill upgrading. Evidence from Argentina," Economics Working Papers 1189, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2011.
  7. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  8. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  9. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  10. Dalia Marin & Thierry Verdier, 2003. "Globalization and the "New Entreprise"," DELTA Working Papers 2003-31, DELTA (Ecole normale supérieure).
  11. Marin, Dalia & Verdier, Thierry, 2006. "Power Inside the Firm and the Market: A General Equilibrium Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 109, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  12. Marin, Dalia & Verdier, Thierry, 2012. "Globalization and the empowerment of talent," Munich Reprints in Economics 19254, University of Munich, Department of Economics.
  13. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning By Exporting Important? Micro-Dynamic Evidence From Colombia, Mexico, And Morocco," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 903-947, August.
  14. 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.
  15. repec:hrv:faseco:4784029 is not listed on IDEAS
  16. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
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Citations

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Cited by:
  1. Claudio Campanale & Rui Castro & Gian Luca Clementi, 2007. "Asset Pricing in a Production Economy with Chew-Dekel Preferences," Working Papers 07-13, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Lorenzo Caliendo & Esteban Rossi-Hansberg, 2011. "The Impact of Trade on Organization and Productivity," NBER Working Papers 17308, National Bureau of Economic Research, Inc.
  3. Yanhui Wu, 2011. "Managerial Incentives and Compensation in a Global Market," CEP Discussion Papers dp1066, Centre for Economic Performance, LSE.
  4. Marin, Dalia & Rousová, Linda, 2011. "The Organization of European Multinationals," Discussion Papers in Economics 12453, University of Munich, Department of Economics.
  5. Marin, Dalia & Verdier, Thierry, 2007. "Power in the Multinational Corporation in Industry Equilibrium," Discussion Papers in Economics 1922, University of Munich, Department of Economics.
  6. Marin, Dalia, 2012. "The Theory of the Firm goes Global," Discussion Papers in Economics 12690, University of Munich, Department of Economics.
  7. Naudé, Wim & Matthee, Marianne, 2012. "Do Export Costs Matter in Determining Whether, When, and How Much African Firms Export?," Working Papers 38, JICA Research Institute.
  8. Zhou, Jun, 2012. "Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 369, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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