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X‐Inefficiency, Competition and Market Information

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  • Paolo Bertoletti
  • Clara Poletti

Abstract

Whether competition forces firms toward efficient behaviour is an open question. We consider a duopoly with firms run by managers and affected by adverse selection on costs. In contrast to recent literature, we point out that, to have a genuine effect on firm X‐inefficiency, competition must change managerial incentives. By introducing the availability of some signal on the rivals' behaviour we show that, if costs are correlated, the contractual use of that signal can render private managerial information uninfluential. This result stresses the informational role of the market and suggests scope for future work.

Suggested Citation

  • Paolo Bertoletti & Clara Poletti, 1997. "X‐Inefficiency, Competition and Market Information," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 359-375, December.
    • Handle: RePEc:bla:jindec:v:45:y:1997:i:4:p:359-375
    DOI: 10.1111/1467-6451.00053
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    Cited by:

    1. Marcello D'Amato & Riccardo Martina & Salvatore Piccolo, 2005. "Competitive Pressure, Incentives and Managerial Rewards," CSEF Working Papers 148, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2006.
    2. Mikhail Drugov, 2021. "Bargaining with informational and payoff externalities," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 398-419, May.

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