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Organizational Structure and Product Market Competition

  • Jung Hur
  • Yohanes E. Riyanto

We analyze an interaction between a firm’s choice of organizational structure and competition in the product-market. Two organizational structures are considered, namely a centralized-organization, whereby formal authority is retained by a principal, and a decentralized-organization, whereby formal authority is delegated to an agent. We show that the choice of organizational structure hinges on a trade-off between operating-profit and managerial effort. The principal may prefer to choose an organizational structure that generates lower operating-profit to motivate the agent to work hard. The choice of organizational structure may also determine whether the rival is active in the market or forced to exit the market.

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Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 21 (2012)
Issue (Month): 3 (09)
Pages: 707-743

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Handle: RePEc:bla:jemstr:v:21:y:2012:i:3:p:707-743
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