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Product Market Competition And Agency Costs

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  • JEN BAGGS
  • JEAN‐ETIENNE DE BETTIGNIES

Abstract

We model the effects of competition on managerial efficiency and isolate the agency effect of competition, present only in firms subject to agency costs, from the direct pressure effect of competition, which is present in all firms. Using a unique set of Canadian data that surveys both firms and their employees, we then evaluate the empirical significance of these two effects. We find that competition has a significant direct pressure effect as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and cost reductions as well as on contractual incentives and employee effort.

Suggested Citation

  • Jen Baggs & Jean‐Etienne De Bettignies, 2007. "Product Market Competition And Agency Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 289-323, June.
    • Handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:289-323
    DOI: 10.1111/j.1467-6451.2007.00312.x
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    References listed on IDEAS

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    1. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    2. ANDERSON, Simon P. & de PALMA, André & THISSE, Jacques-François, 1992. "Interpretations of the logit discrete choice models and the theory of product differentiation," LIDAM Reprints CORE 1017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Rachel Griffith, 2001. "Product market competition, efficiency and agency costs: an empirical analysis," IFS Working Papers W01/12, Institute for Fiscal Studies.
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