Dynamic Flexibility, Optimal Organization Modes and Price Instability

Overview & Synopsis

In this paper a mathematical model describing the organization structure of firms (i.e. those economical entities which are called "productive systems" in [14] ) is introduced. In the framework of quoted model we can give a precise meaning to the classical definition of flexible industrial organizations (Stigler flexibility) which reads as follows: "a flexible industrial organization permits to approximate the best technology for any output, at the cost of not being able to use the best technology for any output" (see [2] on pg. 315). Moreover we can prove that the presence of exchange price instability enriches the manifold of firms which are competitive. Indeed we characterize the manifolds of equally competitive firms as the level surfaces of the previously introduced profit function. At the same time we introduce the concept of "feasible" organization structures, the set of all of them characterizing the available technology. In this way we are led to a problem of constrained optimization whose solution is in general non-unique: we are thus able to characterize technologies and instabilities which produce a multeplicity of optimal organization structures.