In-House Competition, Organizational Slack and the Business Cycle

Rudolf Kerschbamer and Yanni Tournas

No 2557, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the impact of variations of product demand on the amount of internal slack in multi-plant firms in a model in which facilities can produce output at a privately known cost up to a previously-determined capacity level. In such a model, the amount of slack in the firm is shown to be pro-cyclical. Indeed, as capacity constraints become tighter in booms, slack increases in booms, because the power of in-house competition is reduced, while the opposite is true in downturns. Also, in downturns the firm may use high-cost facili-ties even when low-cost plants are not running at capacity.

Keywords: Demand fluctuations; Slack; Capacity; Competition (search for similar items in EconPapers)
JEL-codes: D20 D82 F23 L22 (search for similar items in EconPapers)
Date: 2000-09
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Journal Article: In-house competition, organizational slack, and the business cycle (2003)
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