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A product innovation game with managerial delegation

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  • Luciano Fanti
  • Luca Gori

Abstract

This research introduces sales delegation in a product innovation game by considering Cournot and Bertrand duopolies. The article first revisits the existing results with profit‐maximising firms, showing that a prisoner's dilemma with undifferentiated products cannot occur in a Bertrand rivalry setting. Then, by considering the separation between ownership and control, the work shows, when managers are delegated to choose only over quantity or price in the product market, that sales delegation (1) increases (resp. reduces) the likelihood to innovate (not to innovate) under Cournot competition, and (2) increases the likelihood to innovate under Bertrand competition compared to the profit‐maximising setting. Unlike this, if managers are delegated to choose over quantity or price in the product market and product innovation is in the decision‐making stage, sales delegation reduces the likelihood of innovation in both Cournot and Bertrand rivalry settings. Overall, results pinpoint the importance of the managerial delegation in affecting investments in product innovation compared to the profit‐maximising model.

Suggested Citation

  • Luciano Fanti & Luca Gori, 2024. "A product innovation game with managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(2), pages 770-783, March.
    • Handle: RePEc:wly:mgtdec:v:45:y:2024:i:2:p:770-783
    DOI: 10.1002/mde.4029
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    References listed on IDEAS

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    1. Lambertini, Luca, 1996. "Choosing Roles in a Duopoly for Endogenously Differentiated Products," Australian Economic Papers, Wiley Blackwell, vol. 35(67), pages 205-224, December.
    2. Hoefele, Andreas, 2016. "Endogenous product differentiation and international R&D policy," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 335-346.
    3. Lorz Oliver & Wrede Matthias, 2009. "Trade and Variety in a Model of Endogenous Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-14, November.
    4. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    5. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
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    Cited by:

    1. Luciano Fanti & Luca Gori, 2017. "Product innovation and two-part tariff vertical contracts," Discussion Papers 2017/222, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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