Is the Division of Labor Limited by the Extent of the Market? Opportunity Cost Theory with Evidence from the Real Estate Brokerage Industry

Strategic Management Journal (Forthcoming)

52 Pages Posted: 27 Jan 2021

See all articles by Gianluigi Giustiziero

Gianluigi Giustiziero

Frankfurt School of Finance & Management

Date Written: October 21, 2020

Abstract

The division of labor allows individuals to focus their time on a narrower band of activities and increase productivity through specialization, but this comes at a cost. When individuals divide labor, they divide value and split the “pie” they help create. In this paper, I formally model this tradeoff and examine how it is affected by opportunity-cost considerations due to market characteristics. I then test the empirical predictions of the model in the residential real estate brokerage industry in Southeast Michigan. Consistent with the predictions, I find that the division of labor is more likely for properties in the midrange of the price distribution and in larger markets, but less likely at the tails and in markets where property prices exhibit substantial heterogeneity.

Keywords: division of labor, market heterogeneity, opportunity cost, digital intermediaries, strategic human capital

JEL Classification: M1, M2

Suggested Citation

Giustiziero, Gianluigi, Is the Division of Labor Limited by the Extent of the Market? Opportunity Cost Theory with Evidence from the Real Estate Brokerage Industry (October 21, 2020). Strategic Management Journal (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3716272

Gianluigi Giustiziero (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany
60322 (Fax)

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