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Too Many Products: Decentralized Decision Making in Multinational Firms

  • Catherine Thomas
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    I analyze country-level product ranges offered by multinational laundry detergent manufacturers in Western Europe. Observed product range variation across countries exceeds the optimal firm-level response to differences in consumer preferences and retail environments. Counterfactual analysis reveals that increased product range standardization would reduce firm costs and increase profits. These findings are consistent with theory models of local agency, where decentralized decision making can be the constrained optimal organizational form despite the resulting lack of coordination across divisions. My analysis suggests that organizational structure affects product market outcomes and firm performance. (JEL D23, F23, L21, L25, L65)

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    Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

    Volume (Year): 3 (2011)
    Issue (Month): 1 (February)
    Pages: 280-306

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    Handle: RePEc:aea:aejmic:v:3:y:2011:i:1:p:280-306
    Note: DOI: 10.1257/mic.3.1.280
    Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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    1. Raghuram G. Rajan & Luigi Zingales, 2000. "The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms," NBER Working Papers 7546, National Bureau of Economic Research, Inc.
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    12. Bouwens, J.F.M.G. & van Lent, L.A.G.M., 2006. "Assessing the Performance of Business Unit Managers," Discussion Paper 2006-92, Tilburg University, Center for Economic Research.
    13. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009.
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