Does competition raise productivity through improving management quality?

There has been significant progress on these issues in recent years and this paper reports on the current state of affairs

John Van Reenen

2011

Scholarcy highlights

  • A classic question in industrial organization is whether competition raises productivity and if so, through what mechanism? I discuss recent empirical evidence from both large-scale databases and specific industries which suggests that tougher competition does raise productivity and one of the main mechanisms is through improving management practices
  • Do variations in variations in management practices play a role in driving differences in and productivity? We find that the answer is “probably, yes”, the empirical basis for this which we survey in detail is surprisingly weak given the importance of the topic
  • This paper has been a whirlwind tour of some of the new findings that seek to address a classic economic question: does competition raise productivity and if so, what is the mechanism? I have argued that competition does increase productivity and a main mechanism is through improved management practices
  • Our view is that management should be seen partly as a transferable technology and that competition fosters the adoption of better management practices through both selecting out the badly managed firms and giving incumbent firms stronger incentives to improve their management practices
  • We have argued that this perspective is supported by a range of new evidence both from new ways of measuring management and from more robust forms of identifying the causal impact of competition changes on productivity outcomes
  • The theoretical perspective of management as a transferable technology needs to be developed further and we need to think more about what are the testable implications that could distinguish this paradigm from the other perspectives on the economics of management
  • If the consensus is emerging that competition does have an effect on within firm incentives to upgrade productivity and management, we need to know why? Which theoretical mechanisms are at play and where will the forces be stronger? This has obvious implications for public policy

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