Does Product Market Competition Lead Firms to Decentralize?

12 Pages Posted: 11 Jan 2010

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Raffaella Sadun

Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 11, 2010

Abstract

There is a widespread sense that over the last two decades firms have been decentralizing decisions to employees further down the managerial hierarchy. Economists have developed a range of theories to account for delegation, but there is less empirical evidence, especially across countries. This has limited the ability to understand the phenomenon of decentralization. To address the empirical lacuna we have developed a research program to measure the internal organization of firms - including their decentralization decisions - across a large range of industries and countries. In this paper we investigate whether greater product market competition increases decentralization. For example, tougher competition may make local manager’s information more valuable, as delays to decisions become more costly. Since globalization and liberalization have increased the competitiveness of product markets, one explanation for the trend towards decentralization could be increased competition. Of course there are a range of other factors that may also be at play, including human capital, information and communication technology, culture and industrial composition. To tackle these issues we collected detailed information on the internal organization of firms across nations. The few data-sets that exist are either from a single industry or (at best) across many firms in a single country. We analyze data on almost 4,000 firms across twelve countries in Europe, North America and Asia. We find that competition does indeed seem to foster greater decentralization.

Suggested Citation

Bloom, Nicholas and Sadun, Raffaella and Van Reenen, John Michael, Does Product Market Competition Lead Firms to Decentralize? (January 11, 2010). Harvard Business School Strategy Unit Working Paper No. 10-052, Available at SSRN: https://ssrn.com/abstract=1534722 or http://dx.doi.org/10.2139/ssrn.1534722

Nicholas Bloom

Stanford University - Department of Economics ( email )

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Raffaella Sadun (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
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London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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Centre for Economic Policy Research (CEPR)

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