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Hiring a manager or not? When asymmetric equilibria arise under outsourcing to a rival

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  • Luciano Fanti
  • Marcella Scrimitore

Abstract

This paper reconsiders the issue of the endogenous choice of delegation in a market in which a vertically integrated producer (VIP) sells an input to a downstream competitor. The choice of whether to hire a manager or not is made at a preplay stage of a game developed by assuming that, within managerial firms, owners provide their managers with incentives affecting both the VIP's decision regarding the input price and retail competition. Our findings rule out that both the symmetric choices of being managerial or entrepreneurial can be implemented in equilibrium when firms compete A la Cournot, which contrasts with previous literature. The paper brings into focus the role of product differentiation in delivering asymmetric equilibria as solutions of the endogenous delegation game.

Suggested Citation

  • 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.
    • Handle: RePEc:pie:dsedps:2017/220
    Note: ISSN 2039-1854
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    References listed on IDEAS

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    More about this item

    Keywords

    Managerial delegation; duopoly; vertically integrated firm.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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