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

45 Pages Posted: 5 Oct 2002

See all articles by Dalia Marin

Dalia Marin

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Thierry Verdier

Paris School of Economics (PSE); Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: September 2002

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.

Keywords: monopolistic competition, corporate reorganisation, theory of the firm, allocation of control

JEL Classification: D23, L1, L22

Suggested Citation

Marin, Dalia and Verdier, Thierry, Power Inside the Firm and the Market: A General Equilibrium Approach (September 2002). Available at SSRN: https://ssrn.com/abstract=336801

Dalia Marin (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

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Munich, D-80539
Germany
+49 89 2180 2446 (Phone)
+49 89 2180 6227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Thierry Verdier

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014
France

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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