Big firms are also too complex. One reason is that managers, in their pursuit of market share, grow their firms in all ways possible: horizontally, vertically, and diagonally. Another reason is that complexity can be a trap, like the Prisoners’ Dilemma: Neither firms nor consumers wish to escape from it alone, though they all would be better off if they could escape from it together. We do not know much about “economic complexity”: What it is and how to measure it. I conclude with a call for deeper understanding of complexity in industrial organization.
KeywordsComplexity System 1 System 2 Fast-and-frugal heuristics The complexity trap The complexity loop
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