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American Economic Journal: Microeconomics: Vol. 3 No. 1 (February 2011)

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Too Many Products: Decentralized Decision Making in Multinational Firms

Article Citation

Thomas, Catherine. 2011. "Too Many Products: Decentralized Decision Making in Multinational Firms." American Economic Journal: Microeconomics, 3(1): 280-306.

DOI: 10.1257/mic.3.1.280

Abstract

I analyze country-level product ranges offered by multinational laundry detergent manufacturers in Western Europe. Observed product range variation across countries exceeds the optimal firm-level response to differences in consumer preferences and retail environments. Counterfactual analysis reveals that increased product range standardization would reduce firm costs and increase profits. These findings are consistent with theory models of local agency, where decentralized decision making can be the constrained optimal organizational form despite the resulting lack of coordination across divisions. My analysis suggests that organizational structure affects product market outcomes and firm performance. (JEL D23, F23, L21, L25, L65)

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Authors

Thomas, Catherine (Columbia U)

JEL Classifications

D23: Organizational Behavior; Transaction Costs; Property Rights
F23: Multinational Firms; International Business
L21: Business Objectives of the Firm
L25: Firm Performance: Size, Diversification, and Scope
L65: Chemicals; Rubber; Drugs; Biotechnology

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