IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v55y2007i2p289-323.html
   My bibliography  Save this article

Product Market Competition And Agency Costs

Author

Listed:
  • JEN BAGGS
  • JEAN‐ETIENNE DE BETTIGNIES

Abstract

We model the effects of competition on managerial efficiency and isolate the agency effect of competition, present only in firms subject to agency costs, from the direct pressure effect of competition, which is present in all firms. Using a unique set of Canadian data that surveys both firms and their employees, we then evaluate the empirical significance of these two effects. We find that competition has a significant direct pressure effect as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and cost reductions as well as on contractual incentives and employee effort.

Suggested Citation

  • Jen Baggs & Jean‐Etienne De Bettignies, 2007. "Product Market Competition And Agency Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 289-323, June.
    • Handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:289-323
    DOI: 10.1111/j.1467-6451.2007.00312.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-6451.2007.00312.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-6451.2007.00312.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    2. Caves, Richard E, 1980. "Industrial Organization, Corporate Strategy and Structure," Journal of Economic Literature, American Economic Association, vol. 18(1), pages 64-92, March.
    3. Green, Alison & Mayes, David, 1991. "Technical Inefficiency in Manufacturing Industries," Economic Journal, Royal Economic Society, vol. 101(406), pages 523-538, May.
    4. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
    5. Richard E. Caves, 1992. "Industrial Efficiency in Six Nations," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031930, December.
    6. Haskel, Jonathan, 1991. "Imperfect Competition, Work Practices and Productivity Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 265-279, August.
    7. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    8. Jean‐Etienne De Bettignies, 2006. "Product market competition and boundaries of the firm," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 948-970, August.
    9. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    10. Benjamin E. Hermalin, 1992. "The Effects of Competition on Executive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 350-365, Autumn.
    11. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 191-213.
    12. Rachel Griffith, 2001. "Product market competition, efficiency and agency costs: an empirical analysis," IFS Working Papers W01/12, Institute for Fiscal Studies.
    13. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, September.
    14. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    15. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, 1992. "Interpretations of the logit discrete choice models and the theory of product differentiation," LIDAM Reprints CORE 1017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Baggs, Jennifer & de Bettignies, Jean-Etienne, 2006. "Concurrence sur le marche des produits et couts de delegation," Direction des études analytiques : documents de recherche 2006287f, Statistics Canada, Direction des études analytiques.
    2. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    3. Vicente Cuñat & Maria Guadalupe, 2009. "Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 179-212, April.
    4. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
    5. Ennasri, Ahmed & Willinger, Marc, 2014. "Incentives and managerial effort under competitive pressure: An experiment," Research in Economics, Elsevier, vol. 68(4), pages 324-337.
    6. Marcello D'Amato & Riccardo Martina & Salvatore Piccolo, 2005. "Competitive Pressure, Incentives and Managerial Rewards," CSEF Working Papers 148, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2006.
    7. Cuñat, Vicente & Guadalupe, Maria, 2009. "Executive compensation and competition in the banking and financial sectors," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 495-504, March.
    8. Van Reenen, John, 2011. "Does competition raise productivity through improving management quality?," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 306-316, May.
    9. Evangelia Chalioti, 2015. "Incentive contracts under product market competition and R&D spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 305-328, February.
    10. Stefan Beiner & Markus M. Schmid & Gabrielle Wanzenried, 2011. "Product Market Competition, Managerial Incentives and Firm Valuation," European Financial Management, European Financial Management Association, vol. 17(2), pages 331-366, March.
    11. Priscila Ferreira, 2019. "Market competition and executive pay," IZA World of Labor, Institute of Labor Economics (IZA), pages 115-115, February.
    12. Andergassen, Rainer, 2016. "Managerial compensation, product market competition and fraud," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 1-15.
    13. Ujjayini Roy & Indrani Chakraborty, 2023. "Market concentration, agency cost and firm performance: a case study on Indian corporate firms," Economic Change and Restructuring, Springer, vol. 56(4), pages 2645-2693, August.
    14. Alejandro Robinson Cortés, 2013. "Eficiencia Interna y Competencia de Mercado en Oligopolio," Undergraduate theses (Spanish) tesl001, CIDE, División de Economía.
    15. Ahmed Ennasri, 2010. "Incitations Managériales et Concurrence : Synthèse de la Littérature," Studies and Syntheses 10-03, LAMETA, Universtiy of Montpellier, revised Oct 2010.
    16. Chalioti, Evangelia & Serfes, Konstantinos, 2017. "Strategic incentives for innovations and market competition," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 427-449.
    17. Cuñat, Vicente & Guadalupe, Maria, 2006. "Globalization and the Provision of Incentives Inside the Firm," CEPR Discussion Papers 5950, C.E.P.R. Discussion Papers.
    18. Dam, Kaniska, 2015. "Job assignment, market power and managerial incentives," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 222-233.
    19. Januszewski, Silke I. & Koke, Jens & Winter, Joachim K., 2002. "Product market competition, corporate governance and firm performance: an empirical analysis for Germany," Research in Economics, Elsevier, vol. 56(3), pages 299-332, September.
    20. Maican, Florin & Orth, Matilda, 2015. "A dynamic analysis of entry regulations and productivity in retail trade," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 67-80.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:289-323. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.