Power Inside the Firm and the Market: A General Equilibrium Approach

Marin, Dalia and Verdier, Thierry (March 2006): Power Inside the Firm and the Market: A General Equilibrium Approach. SFB/TR 15 Discussion Paper No. 109

Abstract

Recent years have witnessed an enormous amount of reorganization of the corporate sector in the US and in Europe. This paper examines the role of market competition for this trend in corporate reorganization. We find that at intermediate levels of competition the CEO of the corporation decides to have less power inside the firm and to delegate control to lower levels of the firms’ hierarchy. Thus, workers empowerment and the move to flatter firm organizations emerge as an equilibrium when competition is not too tough and not too weak. The model predicts merger waves or waves of outsourcing when countries become more integrated into the world economy as the corporate sector reorganizes in response to an increase in international competition.

• Item Type: Paper
• Keywords: monopolistic competition, international trade, corporate reorganisation, flattening firm hierarchies
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B5 - Weltwirtschaftliche Integration und die neue Firmenorganisation; Economics; Economics > Chairs > Chair of International Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: F12, D23, L22, L1
• Language: English