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Delegation in a Vertically Differentiated Duopoly

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  • Fatima Barros
  • Isabel Grilo

Abstract

In a context of vertical product differentiation we analyze the effect of delegation on quality levels. We consider a duopoly where firms can delegate the quality‐determining activities to an agent. The realization of the random cost associated with the quality level is known, at no cost, by the firm or the agent that undertakes these activities. By delegating, a firm faces an asymmetry of information since the owner cannot observe the realization of the random variable, which is the agent’s private information. When one firm delegates and the other does not, we find two equilibria that mimic the full information situation, and two equilibria which display quality levels for the delegating firm lower than the full information ones. When the delegation decision is endogenous there are equilibrium configurations with zero, one and two delegating firms.

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  • Fatima Barros & Isabel Grilo, 2002. "Delegation in a Vertically Differentiated Duopoly," Manchester School, University of Manchester, vol. 70(1), pages 164-184, January.
    • Handle: RePEc:bla:manchs:v:70:y:2002:i:1:p:164-184
    DOI: 10.1111/1467-9957.00290
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    Cited by:

    1. Wang, Xingtang & Wang, Leonard F.S., 2021. "Vertical product differentiation, managerial delegation and social welfare in a vertically-related market," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 149-159.
    2. Caterina Colombo & Alessandra Chirco & Marcella Scrimitore, 2009. "Strategic delegation and market competitiveness," Economics Bulletin, AccessEcon, vol. 29(3), pages 1708-1716.
    3. Scrimitore, Marcella, 2010. "Managerial Incentives and Stackelberg Equilibria in Oligopoly," MPRA Paper 24245, University Library of Munich, Germany.
    4. Pei-Cheng Liao, 2010. "Discriminatory input pricing and strategic delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 263-276.

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