Multimarket Competition, Consumer Search, and the Organizational Structure of Multiunit Firms

Abstract

This research explores how market competition influences a firm's optimal organizational structure. For this purpose, a computational model of competing multiunit firms is developed in which unit managers and corporate staff continually search for better practices, while consumers search among units to find a better match. Organizational structure impacts both the practices at the unit level and the extent of knowledge transfer. An increasing returns mechanism is identified, which results in the relative performance of the centralized form being greater when competition is more intense.