Private benefits and product market competition

Abstract

In a market economy, competition is the most powerful mechanism contributing to global efficiency, which ensures by itself good governance. This point of view has been extensively discussed in the literature (for recent surveys see Allen and Gale, 2000, Buccirossi and Spagnolo, 2007). Market forces eliminate the firms whose managers waste the resources and/or do not exert sufficient effort to increase productivity and promote new investments. Even if the shareholders and the managers interests are not perfectly aligned, the last word belongs to the market, including the market for corporate control which allocates at best the financial resources and the management skills.