A Theory of Firm Scope
The formal literature on firm boundaries has assumed that ex post conflicts are resolved through bargaining. In reality, parties often simply exercise their decision rights. We develop a model, based on shading, in which the use of authority has a central role. We consider two firms deciding whether to adopt a common standard. Nonintegrated firms may fail to coordinate if one firm loses. An integrated firm can internalize the externality, but puts insufficient weight on employee benefits. We use our approach to understand why Cisco acquired StrataCom, a provider of new transmission technology. We also analyze delegation. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..
Year of publication: |
2010
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Authors: | Hart, Oliver ; Holmstrom, Bengt |
Published in: |
The Quarterly Journal of Economics. - MIT Press. - Vol. 125.2010, 2, p. 483-513
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Publisher: |
MIT Press |
Saved in:
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