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The “Value Principle” in Management Practices, Organizational Design, and Industrial Organization

Author

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  • Patrick Legros

    (European Center for Advanced Research in Economics and Statistics, Université Libre de Bruxelles, 1050 Bruxelles, Belgium
    Centre for Economic Policy Research, London, UK and Paris, France)

  • Andrew F. Newman

    (Department of Economics, Boston University, Boston, MA 02215, USA
    Centre for Economic Policy Research, London, UK and Paris, France)

Abstract

The value principle in organizational economics states that the net market value of the goods that a firm sells is a key determinant of its organizational design. We survey and extend some recent developments in the theoretical literature at the nexus of organizational and industrial economics, focusing on this precept as the unifying theme. Under perfect competition, we study how market price influences the use of scarce professional management and the degree of organizational heterogeneity in an industry. In a more general setting, we show how changes in demand influence not only the use of professional management, but also the size and the market power of firms. And we show how prices can affect the internal control structure of firms, sometimes in highly distorted ways. We discuss applications to comparative industrial organization and to technological diffusion.

Suggested Citation

  • Patrick Legros & Andrew F. Newman, 2025. "The “Value Principle” in Management Practices, Organizational Design, and Industrial Organization," Games, MDPI, vol. 16(5), pages 1-20, September.
    • Handle: RePEc:gam:jgames:v:16:y:2025:i:5:p:50-:d:1747693
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    References listed on IDEAS

    as
    1. Legros, Patrick & Newman, Andrew F., 2017. "Demand-driven integration and divorcement policy," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 306-325.
    2. Kaniṣka Dam & Konstantinos Serfes, 2021. "A Price Theory of Vertical and Lateral Integration Under Productivity Heterogeneity," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 751-784, December.
    3. Danny McGowan, 2017. "Digging Deep to Compete: Vertical Integration, Product Market Competition and Prices," Journal of Industrial Economics, Wiley Blackwell, vol. 65(4), pages 683-718, December.
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