Communication Costs and the Internal Organisation of Multi-plant Businesses: Evidence from the Impact of the French High-speed Rail

Abstract

We take advantage of the expansion of the French High-speed Rail to study the impact of decreases in communication costs in the form of lower travel times between headquarters and affiliated plants of corporate groups. We show that such shocks foster the functional specialisation of remote affiliates on their production activities. Support activities shrink because of the transfer of high-skilled managers to headquarters. These organisational rationalisations have a significant but small impact on overall profit. Our results hold across all industries but are strongest in services where the information to be transmitted across sites is arguably softer.