Cooperation-based Clustering for Profit-maximizing Organizational Design

This paper shows how the notion of value of cooperation, a measure of the percentage of a firm’s profits due strictly to the cooperative effects among the goods it sells, can be used to analyze the relative economic advantage afforded by various organizational structures. The value of cooperation is computed from transactions data by solving a regression problem to fit the parameters of the consumer demand function, and then simulating the resulting profit-maximizing dynamic system under various organizational structures. A hierarchical agglomerative clustering algorithm can be applied to reveal the optimal organizational substructure.