Rivalry between Shareholder Value and Large Size in the Global Economy

I show that in a global market for corporate control straightforward profit maximization, not maximizing a weighted sum of profits and sales, is the dominant solution of the game if management assigns decisions on output and the input of productive factors to different departments within the firm. In this framework the cost function depends on the goal. Average costs decline either by offering lower wage rates or by raising total factor productivity. This modeling helps explain recent developments in industry, such as the pursuit of shareholder value and also the decline of wages and structural unemployment