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Optimal Compensation Structure in Consumer Cooperatives under Mixed Oligopoly

Author

Listed:
  • Michael Kopel

    (Institute of Organization and Economics of Institutions, University of Graz)

  • Marco A. Marini

    (Department of Computer, Control and Management Engineering, Sapienza Università di Roma)

Abstract

The main aim of this paper is to derive properties of an optimal compensation scheme for consumer cooperatives (Coops) in situations of strategic interaction with profitmaximizing firms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a straight salary to its manager whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, due to consumers’ preferences, a Coop is per se highly expansionary in term of output and, therefore, does not need to provide strong strategic incentives to their managers to expand output aggressively by undercutting its rival.

Suggested Citation

  • Michael Kopel & Marco A. Marini, 2012. "Optimal Compensation Structure in Consumer Cooperatives under Mixed Oligopoly," DIS Technical Reports 2012-06, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    • Handle: RePEc:aeg:wpaper:2012-6
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    File URL: http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/wpaper/2012-06.pdf
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    References listed on IDEAS

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    Cited by:

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    2. Richard Meade, 2015. "Incentives, Efficiency and Quality in Regulated Monopolies under Customer Ownership," Working Papers 2015-05, Auckland University of Technology, Department of Economics.
    3. Saha, Souresh, 2014. "Firm's objective function and product and process R&D," Economic Modelling, Elsevier, vol. 36(C), pages 484-494.

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