Community Research and Development Information Service - CORDIS

Novel approach to measure organisational behaviour on an industry’s competitiveness

An EU initiative studied the relationship between organisational structures within firms and overall industry competition.
Novel approach to measure organisational behaviour on an industry’s competitiveness
With EU funding, the EMPIRICAL ORGAIO (Empirical assessment of intra-organizational behavior on industry competitiveness) project refined an empirical framework that draws upon the industrial organisation domain.

The framework, which makes use of data from several firms and industries, estimates internal frictions in firms and transaction costs, as well as the impact of organisational change on industry prices, competition and welfare. A similar strategy was applied to directly assess the intensity of competition between different firms in an industry.

Project partners found that recently developed differentiation instruments that exploit heterogeneity in the product space can contribute to identifying supply side parameters of interest. This allows for assessing detailed structures of supply behaviour. They then applied the framework using data from the ready-to-eat cereal industry. The availability of both retail and wholesale price data greatly helped in sorting out costs and industry mark-ups.

From an organisational perspective, the EMPIRICAL ORGAIO team revealed that the degree of joint profit maximisation of merging firms increases during the first two years following an industry merger. This eventually led to almost full maximisation of joint profits.

With respect to industry, researchers observed that 15-22 % of wholesale mark-ups in the industry during the given time span were the result of firms cooperating within the industry. This provided evidence that industry behaviour deviates from full competition.

EMPIRICAL ORGAIO provided a method to test the assumption that the merger simulation tool usually relies on the notion that firms fully and immediately maximise joint profits following a merger. It also provided solutions to evaluate the degree of competition in an industry. This is particularly important for competition policy as authorities are informed when to investigate a market further because of anti-competitive concerns. Lastly, the project laid a solid foundation in assessing whether firm performance might be harmed due to inefficient integration.

Related information

Keywords

Organisational behavior, industry competitiveness, EMPIRICAL ORGAIO, joint profit, merger
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