In the previous chapters, the significance of organizational devices for multimarket firms’ strategies was analyzed. Applying a simple two market model, the focus was on the role of delegation decisions and commitment devices of multimarket firms. The importance of organizational design within two- or three-stage games and within the framework of an infinitely repeated game was stressed. Specifically, the following results were obtained. In chapter 4, it was shown that decentralizing decisions serves as a device for shaping managers’ reaction functions and hence for influencing the strategies chosen by the competitor. By compensating managers on the basis of a weighted average of corporate and divisional profits, firms determine how aggressive the managers’ strategies are in the market game. Firms always choose contracts which make managers play aggressively. If there are economies of scope, a high weight is put on corporate profits, thus making managers internalize positive cost spillovers, while diseconomies of scope suggest the placing of a high weight on divisional profits. Consumers benefit from such a strategy. Firms would prefer less aggressive behavior, but are in a prisoner’s dilemma situation with respect to their incentive choices.
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- Deutscher Universitätsverlag
- Chapter 8
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