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Organizational Diseconomies of Scale

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  • McAfee, R Preston
  • McMillan, John

Abstract

Private information creates a cost of operating a hierarchy, which becomes larger as the hierarchical distance between the information source and the decision maker increases. When information about a firm's capabilities is dispersed among the individuals in the firm, production is inefficient even though everyone behaves rationally. Because hierarchies need rents in order to function, a firm with a long hierarchy may not be viable in a competitive industry. Copyright 1995 by MIT Press.

Suggested Citation

  • McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
  • Handle: RePEc:bla:jemstr:v:4:y:1995:i:3:p:399-426
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    References listed on IDEAS

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    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, pages 59-71.
    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, pages 1156-1169.
    5. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, pages 224-239.
    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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