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Journal Article
The CEO as Monopolist
2023
Overview
CEOs can extract extraordinarily high income from the firms they manage because of their monopoly power. This derives both from a general preference for hiring proven CEOs who have already served at other firms, as well as from the tendency of new CEOs to reorganize the firms they lead. Firms’ status quo bias unnaturally delimits the pool of CEO applicants and increases the monopoly power of incumbent CEOs. New CEOs who install their own top management teams generally reorganize the firm to optimize the application of their own abilities and those of their new team. However, CEOs can also reorganize to maximize their monopoly power. Conceptualizing CEOs as potential monopolists integrates insights from the principal/agent, upper echelon, efficiency wage, and x-inefficiency literatures. This paper develops the consequences of monopolistic CEOs who potentially receive efficiency wages that may exceed their marginal revenue product. If CEO income is sufficiently high, their labor-supply curves bend backwards, something far less likely for other employees. A backward-bending labor-supply curve can result in CEOs receiving even greater income as they deliver even lower levels of executive leadership.
Publisher
Institute of Behavioral and Applied Management
Subject
