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Organizational Structure and Product Market Competition

  • Jung Hur

    ()

    (Department of Economics, National University of Singapore)

  • Yohanes E. Riyanto

    ()

    (Department of Economics, National University of Singapore)

We analyze an interaction between a firm’s choice of organizational structure and competition in the product-market. Two organizational structures are considered, namely a centralized-organization, whereby formal authority is retained by a principal, and a decentralized-organization, whereby formal authority is delegated to an agent. We show that the choice of organizational structure hinges on a trade-off between operating-profit and managerial effort. The principal may prefer to choose an organizational structure that generates lower operating-profit to motivate the agent to work hard. The choice of organizational structure may also determine whether the rival is active in the market or forced to exit the market.

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File URL: http://www.fas.nus.edu.sg/ecs/pub/wp/wp0705.pdf
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Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0705.

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Date of creation: 2007
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Handle: RePEc:nus:nusewp:wp0705
Contact details of provider: Web page: http://www.fas.nus.edu.sg/ecs/index.html

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