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Competing for ownership

Author

Listed:
  • Patrick Legros
  • Andrew Newman

Abstract

We develop a tractable model of the allocation of ownership and control within firms operating in competitive markets. The model shows how scarcity in the market translates into ownership structure inside the organization. It identifies a price-like mechanism whereby local liquidity or productivity shocks propagate, leading to widespread organizational restructuring. Among the model's predictions: firms will become more integrated when the terms of trade become more favorable to yhe short side of the market, when the liquidity of the poorest firm increases sufficiently relative to the mean, and following a uniform increase in productivity. Shocks to the first two moments of the liquidity distribution have multiplier effects on the corresponding moments of the distribution of ownership structures.

Suggested Citation

  • Patrick Legros & Andrew Newman, 2008. "Competing for ownership," ULB Institutional Repository 2013/7020, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/7020
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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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