"Industrial organization has been influential in shaping our understanding of how firms behave in markets, and also Most of the industrial organization literature is based on the premise that firms are represented by a single decision maker, who is driven by a motive of profit maximization and cost minimization. This assumption is nowadays becoming a constraint on IO theory, preventing it from being able to explain certain observed empirical regularities. For instance, it has been well documented that seemingly identical firms often exhibit differing performance or productivity. Under the existing paradigm, this should not occur, since identical firms should choose the same cost-minimizing technology.
The goal of this proposal is to develop a new IO theory based on a richer view of the firm, one in which non-trivial conflicts of interest among shareholders, workers, managers and consumers will shape firm boundaries. This ""Organizational Industrial Organization'' (OIO) will generate rich new insights for the positive and normative analysis of industries, whether or not firms in these industries have market power. In particular, it will be able to account for heterogeneity in organizations among identical firms, will provide simple explanations for real world examples that would be difficult to understand in the traditional IO setting, but also bring fresh and novel analysis to traditional IO questions like the scale and scope of firms, the dynamics of merger activity, and also to less traditional questions like the roles of the managerial market, finance or corporate governance for industry performance.
This proposal details three work packages that the team will develop in priority in this project:
- Finance, governance, the managerial market and firm boundaries.
- The dynamics of firm boundaries and delegation.
- Market power, scale and scope"
Call for proposal
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