Firms' Organization and Efficient Communications Networks

In: The Manchester School, Band 69, Heft 1, S. 77-102

Abstract

This paper presents a very simple characterization of the technological choices underlying M‐form and U‐form organizations. We first show that the externalities within a function favour the M‐form, which gives higher profit, higher output level and lower prices than the U‐form. The major innovation of the paper consists in the analysis of communication flows that constitute a positive externality on demand schedules. When these information flows are introduced, we find conditions under which the U‐form gives output and communication flows higher than the M‐form.