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The Role of Managerial Work in Market Performance: A Monopoly Model with Team Production

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  • Hildenbrand, Andreas
  • Duran, Mihael

Abstract

A monopolist is treated as a nexus of contracts with team production. It has one owner-manager who is the employer of two employees. A team production problem is present if the employer is a “managerial lemon.” If the team production problem is solved, the employer is a “managerial hotshot.” Both managerial hotshot and managerial lemon are found to make profit. Therefore, managerial slack can exist in our monopoly market. Whereas the employer has the incentive to improve management capability in principle, the employees have the incentive to keep management capability low. Moreover, the cost of improving management capability may be prohibitively high. Consequently, managerial slack can persist. The predicted behavior of the monopolist contradicts the neoclassical prediction of market performance in both cases.

Suggested Citation

  • Hildenbrand, Andreas & Duran, Mihael, 2014. "The Role of Managerial Work in Market Performance: A Monopoly Model with Team Production," MPRA Paper 58594, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58594
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    References listed on IDEAS

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    1. Max Albert & Andreas Hildenbrand, 2012. "Industrial organization in the laboratory," MAGKS Papers on Economics 201205, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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    More about this item

    Keywords

    firm organization; market structure; property rights;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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