Divisional power, intra-firm bargaining and rent-seeking behavior in multidivisional corporations

Abstract

Increasing divisional operational responsibilities and the dispersal of knowledge creating activities within the firm have loosened the traditional hierarchical structure of multi-divisional firms. In this paper we argue that a similar mixture of competition and cooperation that is found in inter-firm relationships now characterizes intra-firm relationships. Our model describes a situation in which divisional managers have their own objectives that may diverge from those of the firm as a whole.Thus, divisional managers are both profit-seekers in creating value that can be appropriated and rent-seekers in attempting to maximize their divisional share of the value d by the firm. The bargaining power of a division to maintain and increase its share of the profits generated by the operations of the firm as whole is crucially determined on its strategic independence.