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Vertical externality and strategic delegation

Author

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  • Eun-Soo Park

    (Department of Economics, University of Missouri-Rolla, Rolla, MO 65409-1250, USA)

Abstract

This paper examines the effects of vertical externality generated by the upstream monopoly on the incentives that owners of competing downstream firms give their managers. It is shown that the introduction of the upstream monopoly may have significant effects on the incentive schemes for the downstream firms' managers. In particular, it is shown that in equilibrium, each owner obtains the simple Nash equilibrium outcome regardless of the mode of competition (quantity or price) in the downstream market. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • Eun-Soo Park, 2002. "Vertical externality and strategic delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(3), pages 137-141.
    • Handle: RePEc:wly:mgtdec:v:23:y:2002:i:3:p:137-141
    DOI: 10.1002/mde.1051
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    References listed on IDEAS

    as
    1. Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-524, June.
    2. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    3. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    4. 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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    Citations

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    Cited by:

    1. Luciano Fanti & Marcella Scrimitore, 2017. "Hiring a manager or not? When asymmetric equilibria arise under outsourcing to a rival," Discussion Papers 2017/220, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Xingtang Wang & Leonard F.S. Wang, 2021. "External bargaining versus internal manipulation: A theory of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 134-142, January.
    3. Pei-Cheng Liao, 2010. "Discriminatory input pricing and strategic delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 263-276.
    4. 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.
    5. Denis Claude & Mabel Tidball, 2020. "Managerial Incentives and Polluting Inputs Under Imperfect Competition," International Series in Operations Research & Management Science, in: Pierre-Olivier Pineau & Simon Sigué & Sihem Taboubi (ed.), Games in Management Science, pages 165-186, Springer.
    6. Zheng Wang, 2015. "Delegation and Vertical Externalities," Economics Bulletin, AccessEcon, vol. 35(2), pages 1128-1135.
    7. Habiger, Peter & Kopel, Michael, 2020. "Strategic delegation in successive oligopolies with differentiated firms," Economics Letters, Elsevier, vol. 194(C).
    8. Luciano Fanti & Marcella Scrimitore, 2017. "The endogeneous choice of delegation in a duopoly with outsourcing to the rival," Discussion Papers 2017/219, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    10. Leonard Wang & Ya-Chin Wang, 2010. "Input Pricing and Market Share Delegation in a Vertically Related Market: Is the Timing Order Relevant?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(2), pages 207-221.
    11. Luciano Fanti & Marcella Scrimitore, 2017. "How to compete? Cournot vs. Bertrand in a vertical structure with an integrated input supplier," Discussion Papers 2017/221, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    12. Kangsik Choi, 2022. "Delegation in multiproduct downstream firms with heterogeneous channels," Journal of Economics, Springer, vol. 135(1), pages 75-102, January.
    13. Nicola Meccheri, 2021. "Biased managers in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 724-736, April.
    14. Nicola Meccheri, 2019. "Biased managers in a vertical structure," Working Paper series 19-12, Rimini Centre for Economic Analysis.
    15. Henrik Vetter, 2020. "Incentive pay and rent in oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1621-1628, December.
    16. Leonard F. S. Wang, 2020. "Relative Performance Versus Market Share Delegation in a Vertically Related Market," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(1), pages 16-27, June.
    17. Michael Kopel & Eva Maria Putz, 2021. "Sharing managerial contract information in a vertically related market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 1037-1047, June.
    18. Luciano Fanti & Marcella Scrimitore, 2019. "How to Compete? Cournot versus Bertrand in a Vertical Structure with an Integrated Input Supplier," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 796-820, January.

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