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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), Trier University)

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," IAAEU Discussion Papers 202102, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    • Handle: RePEc:iaa:dpaper:202102
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

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

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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