Competition, Agency and Productivity
Melbourne Institute Working Paper No. 20/03
Date: July 2003
This paper tests a set of hypotheses relating to agency and Schumpeterian views on how competition affects performance. A survey data set of Australian workplaces is used, with the change in labour productivity growth as the dependent variable. The results show strong support for the idea that intense competition raises productivity growth in managerial workplaces, but not in non-managerial workplaces (i.e. where the principal owner also works). Testing the agency theories in more detail we find no evidence that the number of competitors, the price elasticity of demand or a proxy for bankruptcy (pre-tax losses) are the mechanisms behind the process. For nonmanagerial workplaces the results indicate support for the idea that greater demand uncertainty reduces productivity growth. In contrast, for managerial workplaces greater demand uncertainty tends to raise productivity growth.