Discussion paper

DP2557 In-House Competition, Organizational Slack and the Business Cycle

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.

£6.00
Citation

Kerschbamer, R and Y Tournas (eds) (2000), “DP2557 In-House Competition, Organizational Slack and the Business Cycle”, CEPR Press Discussion Paper No. 2557. https://cepr.org/publications/dp2557