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Our product is unique: A note on a delegation game with differentiated products

Author

Listed:
  • Clemens Buchen

    (WHU - Otto Beisheim School of Management)

  • Sven A. Hartmann

    (Institute for Labour Law and Industrial Relations in the European Union (IAAEU) - Trier University)

  • Alberto Palermo

    (Institute for Labour Law and Industrial Relations in the European Union (IAAEU))

Abstract

We analyze a Cournot duopoly market with differentiated goods and the separation between ownership and control. We consider a delegation game, for which the owner of a firm hires a manager who acts as if the good has a lower degree of substitutability than it really has. This is so either because managers are biased and perceive the good in this way, or because firms design an incentive scheme accordingly, which leads the manager to act in this way. Both firms rely on delegation. We discuss conditions, which lead one firm to increase its profit implying that the usual result of a prisoners´ dilemma is avoided.

Suggested Citation

  • Clemens Buchen & Sven A. Hartmann & Alberto Palermo, 2021. "Our product is unique: A note on a delegation game with differentiated products," Economics Bulletin, AccessEcon, vol. 41(3), pages 1322-1329.
    • Handle: RePEc:ebl:ecbull:eb-20-01231
    as

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    References listed on IDEAS

    as
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    4. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    5. Choi Kangsik & Lee Ki-Dong & Lim Seonyoung, 2020. "Managerial Delegation of Competing Vertical Chains with Vertical Externality," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(2), pages 1-18, June.
    6. 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.
    7. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    8. Domenico De Giovanni & Fabio Lamantia, 2017. "Evolutionary dynamics of a duopoly game with strategic delegation and isoelastic demand," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 877-903, November.
    9. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Strategic Delegation; Managerial Incentives; Oligopoly;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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    Access and download statistics

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