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Delegation study in asymmetric game

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  • Kai Zhao

Abstract

This paper distinguishes between two types of delegation: Partial Delegation and Full Delegation, in the context of both spillovers and product differentiation endogenously determined by firms. By studying all possible (symmetric and asymmetric) scenarios, we demonstrate that there are three Nash equilibrium strategy profiles for this delegation game, the Pareto optimal solution is that both firms choose Partial Delegation. Partial Delegation can increase the product variety, foster firms to spend more on R&D, encourage firms to produce high-quality goods, and increase the price and profit. However, it may decrease welfare and hurt consumers’ interests. Consequently, in private view, firms prefer Partial Delegation, but in public view, Full Delegation should be encouraged. Copyright Springer International Publishing Switzerland 2015

Suggested Citation

  • 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.
    • Handle: RePEc:spr:epolit:v:32:y:2015:i:2:p:221-244
    DOI: 10.1007/s40888-015-0012-0
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    More about this item

    Keywords

    Endogenous spillovers; Full Delegation; Partial Delegation; O31; L13; L20; D43;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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