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Divisional power, intra-firm bargaining and rent-seeking behavior in multidivisional corporations

  • Pietro Navarra

    ()

    (Università di Messina (ITA) and CPNSS, London School of Economics (USA))

  • Ram Mudambi

    ()

    (Temple University (USA) and University of Reading (UK))

Increasing divisional operational responsibilities and the dispersal of knowledge creating activities within the firm have loosened the traditional hierarchical structure of multi-divisional firms. In this paper we argue that a similar mixture of competition and cooperation that is found in inter-firm relationships now characterizes intra-firm relationships. Our model describes a situation in which divisional managers have their own objectives that may diverge from those of the firm as a whole.Thus, divisional managers are both profit-seekers in creating value that can be appropriated and rent-seekers in attempting to maximize their divisional share of the value d by the firm. The bargaining power of a division to maintain and increase its share of the profits generated by the operations of the firm as whole is crucially determined on its strategic independence.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 4 (2004)
Issue (Month): 13 ()
Pages: 1-10

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Handle: RePEc:ebl:ecbull:eb-03d20001
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