Recent years have witnessed an enormous amount of reorganization of the corporate sector in the United States and Europe. This article examines the role of market competition in this trend of 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. Workers' empowerment and the move to a flatter organizational structure 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 in the global economy as the corporate sector reorganizes in response to an increase in international competition. (JEL: F12, D23, L22, L1) (c) 2008 by the European Economic Association.
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Paper
Dalia Marin & Thierry Verdier, 2001.
"Power Inside the Firm and the Market: A General Equilibrium Approach,"
Discussion Papers
109, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised Apr 2006.
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Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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