How to control market power of activity centers ? A theoretical model showing the advantages of implementing competition within organizations

• Type: Article in International Scientific Journal
• Date: 2007

Authors

Pedro Cosme da Costa Vieira (Author) FEP; Samuel Alves Pereira (Author) FEP

Journal

Title: Economics Bulletin

Vol. 7 No. 6

Pages: 1-8

ISSN: 1545-2921

Publisher: Economics Bulletin

Indexing

Scopus - 0 Citations

Econlit

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics > Financial science

Other information

Authenticus ID: P-008-ND9

Abstract (EN): One important issue in firms’ governance is how to create incentives so that activity centres can become more efficient. In this paper, we first introduce an agency contract where the salary of the manager of an activity centre that produces an intermediate product is dependent of its performance. Secondly, we add competition within the organization. This latter point is new in the literature. We then develop a "static analysis" comparing a firm that has only one activity centre producing an intermediate product with another firm that has two activity centres producing the same intermediate product, in a context where the technology manifests increasing returns to scale. We conclude that the introduction of internal competition makes the firm globally more efficient, even though it cannot fully explore the existence of increasing returns to scale.

Language: Portuguese

Type (Professor's evaluation): Scientific