Does competition raise productivity through improving management quality?

Abstract

a b s t r a c t JEL classification: L2 M2 O32 O33A 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 indeed raise productivity and one of the main mechanisms is through improving management practices. To establish this, I report on new research seeking to quantify management. I relate this to theoretical perspectives on the economics of competition and management, arguing that management should be seen at least in part as a transferable technology. A range of recent econometric studies suggests that (i) competition increases management quality and (ii) improved management quality boosts productivity.

Management Practices and Productivity in Germany

“…Bloom and van Reenen () argue that fierce product market competition forces establishments to employ the best management practices in order to survive. Accordingly, badly performing establishments drop out of the market (van Reenen, ). Another explaining factor for management score differences are labor market regulations.…”

Exploring the use of patents in a weak institutional environment: The effects of innovation partnerships, firm ownership, and new management practices

“…Thus, new management practices are intended to function as value creating devices (Hecker and Ganter, 2013;Leseure et al, 2004;Van Reenen, 2011). In fact, studies of the adoption of new management practices have shown positive relationships between management practices and both economic (e.g., Bloom and Van Reenen, 2007;Camisón and Villar-López, 2014;Mol and Birkinshaw, 2009) and innovation (e.g., Battisti and Iona, 2009;Hecker and Ganter, 2013;Laursen and Foss, 2003) performance.…”

Employee education, information and communication technologies, workplace organization, and trade: a comparative analysis of Greek and Swiss firms

“…Aghion et al (2013) postulated, among other things, a positive relationship between human capital and decentralization. Further, retaining high international competitiveness as expressed by high exports also necessitates more intensive use of ICT and new forms of workplace organization (see, e.g., Cassiman et al, 2010 andVan Reenen, 2011). Strictly spoken, complementarity is defined (and measured) in literature with respect to some performance or innovation variable (Athey and Stern, 1998).…”