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Organizational Prospects, Influence Costs, and Ownership Changes


  • Meyer, Margaret
  • Milgrom, Paul
  • Roberts, John


We augment efficiency-based theories of ownership by including influence costs. Our principal conclusion is that the prospect of organizational decline and layoffs creates additional influence costs in multiunit organizations that would be absent if there was no prospect of layoffs and would be lessened or eliminated in focused organizations. This helps explain the tendency of firms to divest poorly performing units, as well as the pattern of sales of such units to firms already in businesses related to that of the divested unit. Copyright 1992 by MIT Press.

Suggested Citation

  • Meyer, Margaret & Milgrom, Paul & Roberts, John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, Spring.
  • Handle: RePEc:bla:jemstr:v:1:y:1992:i:1:p:9-35

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    References listed on IDEAS

    1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    2. Kyle Bagwell & Garey Ramey, 1988. "Advertising and Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 59-71, Spring.
    3. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    4. Bagwell, Kyle, 1991. "Optimal Export Policy for a New-Product Monopoly," American Economic Review, American Economic Association, vol. 81(5), pages 1156-1169, December.
    5. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    6. Gerard J. Tellis & Birger Wernerfelt, 1987. "Competitive Price and Quality Under Asymmetric Information," Marketing Science, INFORMS, vol. 6(3), pages 240-253.
    7. Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure


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