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The Role of Managerial Work in Market Performance: A Monopoly Model with Team Production

Author

Listed:
  • Andreas Hildenbrand

    (University of Gießen)

  • Mihael Duran

    (University of Tuebingen)

Abstract

A monopolist is treated as a nexus of contracts with team production. It has one ownermanager. The owner-manager is the employer of two employees. A team production problem is present if the employer is a “managerial lemon”. If the team production problem is solved, the employer is a “managerial hotshot”. Both a managerial hotshot and a managerial lemon are found to make profit. Managerial slack can therefore exist in our monopoly market. In the case of a managerial lemon, the profit level is lower. However, the employees’ utility level is higher. Whereas the employer has an incentive to improve management capability in principle, the employees have an incentive to keep management capability low. Moreover, the cost of improving management capability may be prohibitively high. Managerial slack can therefore persist. The predicted behavior of the monopolist is grounded in individual behavior under the assumption of utility maximization.

Suggested Citation

  • Andreas Hildenbrand & Mihael Duran, 2013. "The Role of Managerial Work in Market Performance: A Monopoly Model with Team Production," MAGKS Papers on Economics 201353, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201353
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    firm organization; market structure; property rights;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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