Corporate culture and identity investment in an industry equilibrium

• We explore the two-way relationship between corporate culture and market structure.
• We analyse the optimal incentive scheme and corporate culture investment at the firm level.
• We consider the industry equilibrium with free entry and market clearing for managerial labor.
• We discuss how industry characteristics affects equilibrium corporate culture across firms.

We explore the two-way relationship between corporate culture and market structure. We emphasize two market dimensions through which firms interact: the product market where goods are sold and the labor market where managers are hired. We model the firm's principal–agent relationship by assuming that managers may be socialized to a corporate identity that leads them to behave more in concert with the profit maximizing goals of the firm (i.e. a corporate culture). We first analyse the optimal incentive scheme and corporate culture investment at the firm level. Then we consider the industry equilibrium with free entry and market clearing for managerial labor. We discuss how industry characteristics (market size effects), global market integration or technological shocks affect the pattern of equilibrium corporate cultural choices across firms.