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Managerial Incentives and Market Integration

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  • Weibull, Jörgen W.

    (Stockholm School of Economics)

Abstract

This paper develops a new analytical approach to the old question whether market conditions may influence the internal efficiency of firms. The basic textbook model of the firm is slightly extended to incorporate managers' incentives to reduce production costs in an imperfectly competitive product market. This is done without invoking any agency problem or other form of information asymmetry in firms. The analysis extends Marshallian and Hicksian consumer analysis to managers' demand for leisure in imperfectly competitive environments with a fixed number of firms, and free entry, respectively. Conditions are identified under which product market integration enhances the internal efficiency of firms, and it is shown that market integration is Pareto improving under free entry.

Suggested Citation

  • Weibull, Jörgen W., 1996. "Managerial Incentives and Market Integration," Working Paper Series 472, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0472
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    References listed on IDEAS

    as
    1. 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.
    2. Vickers, John, 1995. "Concepts of Competition," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 1-23, January.
    3. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
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