IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/58594.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/58594/1/MPRA_paper_58594.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    2. Richard A. Posner, 1975. "The Social Costs of Monopoly and Regulation," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 45-65, Springer.
    3. De Alessi, Louis, 1983. "Property Rights, Transaction Costs, and X-Efficiency: An Essay in Economic Theory," American Economic Review, American Economic Association, vol. 73(1), pages 64-81, March.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    6. Lazear, Edward P, 1999. "Globalisation and the Market for Team-Mates," Economic Journal, Royal Economic Society, vol. 109(454), pages 15-40, March.
    7. Werner Güth & Kerstin Pull & Manfred Stadler, 2011. "Intrafirm Conflicts and Interfirm Price Competition," Jena Economics Research Papers 2011-042, Friedrich-Schiller-University Jena.
    8. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    9. 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).
    10. Werner Güth & Kerstin Pull & Manfred Stadler, 2009. "Intra-firm Conflicts and Interfirm Competition," Jena Economics Research Papers 2009-007, Friedrich-Schiller-University Jena.
    11. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    2. Max Albert & Andreas Hildenbrand, 2016. "Industrial Organization and Experimental Economics: How to Learn from Laboratory Experiments," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 135-156, August.
    3. Eitan Goldman & Gary Gorton, 2000. "The Visible Hand, the Invisible Hand and Efficiency," NBER Working Papers 7587, National Bureau of Economic Research, Inc.
    4. Waisman, Maya, 2013. "Product market competition and the cost of bank loans: Evidence from state antitakeover laws," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4721-4737.
    5. Prietula, Michael J. & Watson, Harry S., 2008. "When behavior matters: Games and computation in A Behavioral Theory of the Firm," Journal of Economic Behavior & Organization, Elsevier, vol. 66(1), pages 74-94, April.
    6. Hildenbrand, Andreas, 2013. "Is a firm a firm? A Stackelberg experiment," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-26.
    7. Ying Fan & Charles Ka Yui Leung & Zan Yang, 2022. "Financial conditions, local competition, and local market leaders: The case of real estate developers," Pacific Economic Review, Wiley Blackwell, vol. 27(2), pages 131-193, May.
    8. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    9. Ha-Joon Chang & Ali Cheema & L. Mises, 2002. "Conditions For Successful Technology Policy In Developing Countries—Learning Rents, State Structures, And Institutions," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(4-5), pages 369-398.
    10. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    11. Oliver Hart, 2011. "Thinking about the Firm: A Review of Daniel Spulber's The Theory of the Firm," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 101-113, March.
    12. Alexander Radygin & Revold Entov & Marina Turuntseva & Alena Gontmakher & Harry Swain & Jeff Carruthers & Karen Minden & Cheryl Urban, 2002. "The problems of corporate governance in Russia and its regions," Published Papers 12, Gaidar Institute for Economic Policy, revised 2002.
    13. Lee, Ji Hye & Byun, Hee Sub & Park, Kyung Suh, 2018. "Product market competition and corporate social responsibility activities: Perspectives from an emerging economy," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 60-80.
    14. Staffan Canback, 2004. "Diseconomies of scale in large corporations: Theory and empirical analysis," Industrial Organization 0402001, University Library of Munich, Germany.
    15. Pull, Kerstin & Stadler, Manfred, 2015. "Contests vs. piece rates in product market competition," University of Tübingen Working Papers in Business and Economics 85, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    16. Kumar, Rajesh & Rangan, U. Srinivasa & Rufín, Carlos, 2005. "Negotiating complexity and legitimacy in independent power project development," Journal of World Business, Elsevier, vol. 40(3), pages 302-320, August.
    17. Maria Guadalupe & Francisco Perez-Gonzalez, 2006. "The Impact of Product Market Competition on Private Benefits of Control," Hi-Stat Discussion Paper Series d05-159, Institute of Economic Research, Hitotsubashi University.
    18. Ujjayini Roy & Indrani Chakraborty, 2023. "Market concentration, agency cost and firm performance: a case study on Indian corporate firms," Economic Change and Restructuring, Springer, vol. 56(4), pages 2645-2693, August.
    19. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    20. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:58594. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.