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Cost‐Saving Production Technologies And Strategic Delegation

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  • JUAN CARLOS BÁRCENA‐RUIZ
  • NORMA OLAIZOLA

Abstract

This work analyses a managerial delegation model in which firms choose between two production technologies: a low marginal cost technology and a high marginal cost technology. For the former to be adopted more investment is needed than for the later. By giving managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we find that Bertrand competition provides a stronger incentive to adopt the cost‐saving technology than the strict profit maximisation case. However, the results may be reversed under Cournot competition. If the degree of product substitutability is sufficiently low (high), the incentive to adopt the cost‐saving technology is larger under strict profit maximisation (strategic delegation).

Suggested Citation

  • Juan Carlos Bárcena‐Ruiz & Norma Olaizola, 2006. "Cost‐Saving Production Technologies And Strategic Delegation," Australian Economic Papers, Wiley Blackwell, vol. 45(2), pages 141-157, June.
    • Handle: RePEc:bla:ausecp:v:45:y:2006:i:2:p:141-157
    DOI: 10.1111/j.1467-8454.2006.00283.x
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    Cited by:

    1. Kai Zhao, 2015. "Delegation study in asymmetric game," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(2), pages 221-244, August.
    2. Luciano Fanti, 2014. "Welfare effects of cross-ownership in a unionised duopoly," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2014(2), pages 21-41.
    3. repec:ehu:ikerla:6491 is not listed on IDEAS
    4. Luciano Fanti, 2011. "Product differentiation and duopoly: when social welfare benefits from cross-shareholding," Discussion Papers 2011/129, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    5. Fanti, Luciano, 2013. "Cross-ownership and unions in a Cournot duopoly: When profits reduce with horizontal product differentiation," Japan and the World Economy, Elsevier, vol. 27(C), pages 34-40.
    6. Bárcena-Ruiz, Juan Carlos & Olaizola, Norma, 2008. "Choice of flexible production technologies under strategic delegation," Japan and the World Economy, Elsevier, vol. 20(3), pages 395-414, August.

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