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Bargaining over Managerial Contracts in Delegation Games: The Differentiated Goods Case

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  • Yasuhiko Nakamura

    (Graduate School of Economics, Waseda University)

Abstract

This paper investigates the bargaining between owners and managers over their managerial delegation contracts, in order to explain the disclosure obligation that is central to many modern corporate governance codes. We consider the managerial incentive contracts based on the profit and sales of each firm and the delegation game with bargaining in two types of differentiated-products duopolistic competition wherein each firm's manager chooses his or her own output or price. We show that in equilibrium, the profit of each firm decreases, whereas the consumer surplus and social welfare increase as the relative bargaining power of the managers increases in both quantity and price competitions. Thus, we find that similar to the case of the quantity competition wherein both firms produce homogeneous goods in Witteloostuijn et al. (2007), the managerial power of managers is positively associated with social welfare.

Suggested Citation

  • Yasuhiko Nakamura, 2008. "Bargaining over Managerial Contracts in Delegation Games: The Differentiated Goods Case," Economics Bulletin, AccessEcon, vol. 12(6), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-07l20014
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    References listed on IDEAS

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    1. Arjen van Witteloostuijn & Thijs Jansen & Arie van Lier, 2007. "Bargaining over managerial contracts in delegation games: managerial power, contract disclosure and cartel behavior," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 897-904.
    2. Szymanski, Stefan, 1994. "Strategic delegation with endogenous costs : A duopoly with wage bargaining," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 105-116, March.
    3. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
    4. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
    5. Bughin, J., 1995. "Unions and strategic managerial incentives," Economics Letters, Elsevier, vol. 47(1), pages 95-100, January.
    6. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    7. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Fanti, Luciano & Buccella, Domenico, 2018. "Firms Controlled by Owners and Managerial Firms: The 'Strategic' Trade Policy Game Revisited," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 71(1), pages 51-72.
    2. Yasuhiko Nakamura, 2008. "Bargaining over Managerial Contracts in Delegation Games: The Quadratic Cost Case," Economics Bulletin, AccessEcon, vol. 12(16), pages 1-7.
    3. repec:ebl:ecbull:v:6:y:2008:i:38:p:1-8 is not listed on IDEAS
    4. Ciarreta Antuñano, Aitor & García Enríquez, Javier & Gutiérrez Hita, Carlos, 2012. "A note on bargaining power and managerial delegation in multimarket oligopolies," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    5. Leonard F. S. Wang & Wei Zhao & Ya -Chin Wang, 2008. "Strategic Trade Policy in Bargaining over Managerial Delegation Competition," Economics Bulletin, AccessEcon, vol. 6(38), pages 1-8.
    6. Buccella Domenico & Meccheri Nicola, 2024. "Management Centrality in Sequential Bargaining: Implications for Strategic Delegation, Welfare, and Stakeholder Conflict," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 159-193, January.
    7. Nakamura, Yasuhiko, 2011. "Bargaining over managerial delegation contracts and merger incentives in an international oligopoly," Research in Economics, Elsevier, vol. 65(1), pages 47-61, March.
    8. Stamatopoulos, Giorgos, 2018. "Bargaining over managerial contracts: a note," MPRA Paper 86143, University Library of Munich, Germany.
    9. repec:ebl:ecbull:v:12:y:2008:i:16:p:1-7 is not listed on IDEAS
    10. Yasuhiko Nakamura, 2017. "Price Versus Quantity in a Duopoly with a Unilateral Effect and with Bargaining over Managerial Contracts," Journal of Industry, Competition and Trade, Springer, vol. 17(1), pages 83-119, March.
    11. repec:ebl:ecbull:v:12:y:2008:i:7:p:1-8 is not listed on IDEAS
    12. Yasuhiko Nakamura & Kohei Kamaga, 2008. "Bargaining over Managerial Contracts in Delegation Games: The Sequential Move Case," Economics Bulletin, AccessEcon, vol. 12(7), pages 1-8.

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    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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