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Competing for ownership

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  • Patrick Legros
  • Andrew Newman

Abstract

We develop a tractable model of the allocation of ownership and control within firms operating in competitive markets. The model shows how scarcity in the market translates into ownership structure inside the organization. It identifies a price-like mechanism whereby local liquidity or productivity shocks propagate, leading to widespread organizational restructuring. Among the model's predictions: firms will become more integrated when the terms of trade become more favorable to yhe short side of the market, when the liquidity of the poorest firm increases sufficiently relative to the mean, and following a uniform increase in productivity. Shocks to the first two moments of the liquidity distribution have multiplier effects on the corresponding moments of the distribution of ownership structures.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/7020.

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Date of creation: 2008
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Publication status: Published in: European Economic Association. Journal (2008) v.6 n° 6,p.1273-1308
Handle: RePEc:ulb:ulbeco:2013/7020

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