Two Experts Are Better Than One: Reaping the Rewards From Specialization Through Better Communication

Abstract

We examine the conditions when it is beneficial to incorporate a common language system between the marketing salesman and product engineer within a firm. Given endogenous communication effort necessary to ensure that product design meets customer preferences, we find that bilateral communication (i.e. some effort is exerted by each party) occurs when communication cost is not too high. More importantly, the range of costs needed for bilateral communication under a common language system strictly subsumes the range of costs that would otherwise be required when languages remain disparate. Likewise, the range of costs for full communication (i.e. maximum effort is exerted by each party) is also enlarged when a common language system is in place. Second, while a common language system has a pure redistribution effect on value capture between the engineer and salesman when costs are sufficiently low, it also has a value creation effect under mid-range costs. As costs become high, the benefits of a common language system are outweighed by a disparate language system.