Does Competition Make Firms More Flexible? A Study of Limited Managerial Cognition
A model of procedural decision making in firms is combined with an oligopoly model to study the effect of limited managerial cognition on firm flexibility. It is argued that a firm may vary its flexibility, and, hence, that there exists a trade-off between decision-making costs and costs due to imperfect adjustment to the environment. The main conclusions are the following: (1) The level of flexibility chosen by firms tends to be too low, from a social welfare point of view. (2) Entry reduces firm flexibility. Aggregated flexibility in the market may, however, increase in which case consumers are unambiguously better off. (3) Integration of isolated markets increases firm flexibility and consumer welfare. Copyright 1994 by MIT Press.
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|Date of creation:||1993|
|Date of revision:|
|Contact details of provider:|| Postal: UNIVERSITY OF STOCKHOLM, INSTITUTE FOR INTERNATIONAL ECONOMIC STUDIES, S- 106 91 STOCKHOLM SWEDEN.|
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