The “Value Principle” in Management Practices, Organizational Design, and Industrial Organization

Patrick Legros and Andrew F. Newman ()
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Patrick Legros: European Center for Advanced Research in Economics and Statistics, Université Libre de Bruxelles, 1050 Bruxelles, Belgium
Andrew F. Newman: Department of Economics, Boston University, Boston, MA 02215, USA

Games, 2025, vol. 16, issue 5, 1-20

Abstract: The value principle in organizational economics states that the net market value of the goods that a firm sells is a key determinant of its organizational design. We survey and extend some recent developments in the theoretical literature at the nexus of organizational and industrial economics, focusing on this precept as the unifying theme. Under perfect competition, we study how market price influences the use of scarce professional management and the degree of organizational heterogeneity in an industry. In a more general setting, we show how changes in demand influence not only the use of professional management, but also the size and the market power of firms. And we show how prices can affect the internal control structure of firms, sometimes in highly distorted ways. We discuss applications to comparative industrial organization and to technological diffusion.

Keywords: vertical and horizontal integration; market power; centralization; delegation; favoritism; missing middle; IT productivity paradox; IO of developing countries; OIO (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2025
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