publication . Preprint . Article . 2012

Organizational Structure and Product Market Competition

Jung Hur; Yohanes E. Riyanto;
Open Access
  • Published: 04 Jul 2012
Abstract
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...
Subjects
ACM Computing Classification System: ComputingMilieux_THECOMPUTINGPROFESSION
free text keywords: Formal and Real Authority, Delegation Structure, Product Market Competition, jel:D80, jel:L22, Product market, Organizational structure, Economics, Microeconomics, Industrial organization, Delegation, media_common.quotation_subject, media_common
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[1] Aghion, P. and J. Tirole (1997), "Formal and Real Authority in Organizations," Journal of Political Economy, 105, pp.1-29. [OpenAIRE]

[2] Brickley, J., C. Smith, and J. Zimmerman (2006), Managerial Economics and Organizational Architecture, 4th Ed., Mc-Graw Hill, New York, 730p.

[3] Coase, Ronald (1937), "The Nature of the Firm", Economica, 4, pp.386-405.

[4] Chandler, A. (1962), Strategy and Structure: Chapters in the History of the Industrial Enterprise, MIT Press, Cambridge-Massachussets, 463 p.

[5] Fershtman, C. and K. Judd (1987), "Equilibrium Incentives in Oligopoly," American Economic Review, 77, pp.927-940.

[6] Jansen, T., A. van Lier, A. van Witteloostuijn (2007), "A Note on Strategic Delegation: the Market Share Case," International Journal of Industrial Organization, 25, pp. 531-539.

[7] Marin, D. and T. Verdier (2003), "Globalization and the New Enterprise," Journal of the European Economics Association, 1, pp. 337-344. [OpenAIRE]

[8] Puga, D. and D. Tre‡er (2007), "Wake Up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low Wage Countries," Working Paper, Available at http://diegopuga.org and http://www.economics.utoronto.ca/tre‡er, 30p.

[9] Shleifer, A. and R. Vishny (1997), "A Survey of Coporate Governance," Journal of Finance, 52, pp. 737-783. [OpenAIRE]

[10] Singh, N. and X. Vives (1984), "Price and Quantity Competition in a Di¤erentiated Duopoly," Rand Journal of Economics, 15, pp.546-554.

[11] Sklivas, S. (1987), "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, 18, pp.452-458. [OpenAIRE]

[12] Tirole, J. (2006), The Theory of Corporate Finance, MIT Press, CambridgeMassachussets, 644p.

[13] Vickers, J. (1985), "Delegation and the Theory of the Firm," Economic Journal, 95, pp. 138-147.

[14] Zanchettin, P. (2006), "Di¤erentiated Duopoly with Asymmetric Costs," Journal of Economics and Management Strategy, 15, pp.999-1015. [OpenAIRE]

Abstract
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...
Subjects
ACM Computing Classification System: ComputingMilieux_THECOMPUTINGPROFESSION
free text keywords: Formal and Real Authority, Delegation Structure, Product Market Competition, jel:D80, jel:L22, Product market, Organizational structure, Economics, Microeconomics, Industrial organization, Delegation, media_common.quotation_subject, media_common
Related Organizations

[1] Aghion, P. and J. Tirole (1997), "Formal and Real Authority in Organizations," Journal of Political Economy, 105, pp.1-29. [OpenAIRE]

[2] Brickley, J., C. Smith, and J. Zimmerman (2006), Managerial Economics and Organizational Architecture, 4th Ed., Mc-Graw Hill, New York, 730p.

[3] Coase, Ronald (1937), "The Nature of the Firm", Economica, 4, pp.386-405.

[4] Chandler, A. (1962), Strategy and Structure: Chapters in the History of the Industrial Enterprise, MIT Press, Cambridge-Massachussets, 463 p.

[5] Fershtman, C. and K. Judd (1987), "Equilibrium Incentives in Oligopoly," American Economic Review, 77, pp.927-940.

[6] Jansen, T., A. van Lier, A. van Witteloostuijn (2007), "A Note on Strategic Delegation: the Market Share Case," International Journal of Industrial Organization, 25, pp. 531-539.

[7] Marin, D. and T. Verdier (2003), "Globalization and the New Enterprise," Journal of the European Economics Association, 1, pp. 337-344. [OpenAIRE]

[8] Puga, D. and D. Tre‡er (2007), "Wake Up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low Wage Countries," Working Paper, Available at http://diegopuga.org and http://www.economics.utoronto.ca/tre‡er, 30p.

[9] Shleifer, A. and R. Vishny (1997), "A Survey of Coporate Governance," Journal of Finance, 52, pp. 737-783. [OpenAIRE]

[10] Singh, N. and X. Vives (1984), "Price and Quantity Competition in a Di¤erentiated Duopoly," Rand Journal of Economics, 15, pp.546-554.

[11] Sklivas, S. (1987), "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, 18, pp.452-458. [OpenAIRE]

[12] Tirole, J. (2006), The Theory of Corporate Finance, MIT Press, CambridgeMassachussets, 644p.

[13] Vickers, J. (1985), "Delegation and the Theory of the Firm," Economic Journal, 95, pp. 138-147.

[14] Zanchettin, P. (2006), "Di¤erentiated Duopoly with Asymmetric Costs," Journal of Economics and Management Strategy, 15, pp.999-1015. [OpenAIRE]

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