Product-Market Competition And Managerial Autonomy
Source: Harvard Business School
It is often argued that competition forces managers to make better choices, thus favoring managerial autonomy in decision making. The author formalizes and challenges this idea. Suppose that managers care about keeping their position or avoiding interference, and that they can make strategic choices that affect both the expected profits of the firm and their riskiness. Even if competition at first pushes the manager towards profit maximization as commonly argued, the author shows that further increases in competitive forces might as well lead him to take excessive risks if the threat on his position is strong enough.