Description
The separation between ownership and control has become common practice over the last century, in most medium and large firms across the world. Throughout the twentieth century, the theory of the firm and the theory of industrial organization developed parallel and complementary views on managerial firms. This book offers a comprehensive exposition of this debate.
In its survey of strategic delegation in oligopoly games, An Economic Theory of Managerial Firms is able to offer a reinterpretation of a range of standard results in the light of the fact that the control of firms is generally not in the hand of its owners. The theoretical models are supported by a wealth of real-world examples, in order to provide a study of strategic delegation that is far more in-depth than has previously been found in the literature on industrial organization. In this volume, analysis is extended in several directions to cover applications concerning the role of: managerial firms in mixed market; collusion and mergers; divisionalization and vertical relations; technical progress; product differentiation; international trade; environmental issues; and the intertemporal growth of firms.
This book is of great interest to those who study industrial economics, organizational studies and industrial studies.
Table of Contents
1 The theory of managerial firms: setting the stage
1.1 Of firms and markets
1.2 U-form vs M-form, and opportunistic behaviour
1.3 Asset specificity, moral hazard and vertical integration
1.4 What does a firm maximize?
1.4.1 The theory of the growth of the firm
1.5 Agency theory
1.5.1 Moral hazard in teams
1.6 Market competition and incentives
2 Strategic delegation in oligopoly
2.1 Sales expansion
2.1.1 Cournot competition
2.1.2 Bertrand competition
2.2 Market shares
2.3 Comparative performance
2.3.1 Cournot competition
2.3.2 Bertrand competition and the mixed case
2.4 All eggs in one basket
2.4.1 Output level vs comparative performance
2.4.2 Market share vs comparative performance
2.4.3 Output level vs market share
2.4.4 The reduced form
2.5 Endogenous timing
2.5.1 Managers choose timing
2.5.2 Owners choose timing
2.6 Entry barriers
2.7 Empirical and experimental evidence
3 Mixed oligopolies
3.1 Strategic delegation and asymmetric information
3.2 Strategic delegation without agency issues
3.3 Delegation and tax policy
4 Collusive behaviour and horizontal mergers
4.1 Stock-based compensation and collusion
4.2 Output-based compensation and collusion
4.2.1 Extension: partial collusion with grim trigger strategies or optimal punishment
4.3 Horizontal mergers
5 Divisionalization and vertical relations
5.1 Vertical separation: supply chain management
5.2 Multidivisional firms
5.2.1 Multidivisionalization with managers
5.2.2 Divisionalization and mergers
6 Innovation and technical progress
6.1 Preliminaries: the principal-agent relationship with R&D
6.2 The persistence of monopoly
6.3 Delegation vs process innovation: a toy model
6.4 Delegation vs process innovation: endogenous R&D
6.4.1 Process innovation
6.4.2 Product innovation
6.5 Process innovation in a managerialized industry
6.6 Technology licensing
6.7 Make or buy?
7 Endogenous product differentiation
7.1 Vertical or horizontal differentiation with convex variable costs
7.1.1 Profit incentives
7.1.2 Managerial incentives
7.1.3 Should firms delegate product design?
7.1.4 Bidimensional product differentiation
7.2 Process innovation and quality improvements
7.2.1 No delegation
7.2.2 Unilateral delegation
7.2.3 Bilateral delegation
7.2.4 The delegation decision
8 Trade and the environment
8.1 International trade
8.1.1 Selling on a third country’s market: export rivalry
8.1.2 Intraindustry trade: import-competing industry
8.1.3 On the equivalence of tariffs and quotas
8.1.4 Comparative profit performance: ex pluribus unum
8.1.5 The market share case
8.2 Polluting emissions and resource exploitation
8.2.1 CSR in mixed oligopolies
8.2.2 Managerial incentives and green innovation
8.3 Supply chains, trade, and pollution
9 Strategic delegation in differential games
9.1 Elements of differential game theory
9.1.1 The state-control system and its properties
9.1.2 The Hamilton–Jacobi–Bellman equation
9.1.3 Closed-loop memoryless information
9.2 A dynamic model of managerial firms’ growth à la Penrose
9.3 Capacity accumulation games
9.3.1 The Solow–Swan game
9.3.2 The Cournot–Ramsey game
9.4 R&D games
9.4.1 Product innovation
9.4.2 Process innovation
9.5 Natural resource extraction
