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Network Externalities and Strategic Managerial Delegation in Cournot Duopoly: Is There a Prisoners’ Dilemma?

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  • Bhattacharjee Trishita
  • Pal Rupayan

    (Indira Gandhi Institute of Development Research (IGIDR), India)

Abstract

This paper analyzes the implications of network externalities on strategic managerial delegation contracts in a Cournot duopoly. It shows that, in the presence of strong network externalities, firms obtain higher profits in the equilibrium under strategic managerial delegation compared with that under no-delegation. Unlike as in the case of weak or no network externalities, owners of firms do not face a Prisoners’ Dilemma type of situation while deciding incentive schemes – sales-oriented vis-à-vis based on profits only – for managers in the presence of strong network externalities. However, both consumers’ surplus and social welfare are higher in the equilibrium under strategic managerial delegation compared to those under no delegation, irrespective of the strength of network externalities.

Suggested Citation

  • Bhattacharjee Trishita & Pal Rupayan, 2014. "Network Externalities and Strategic Managerial Delegation in Cournot Duopoly: Is There a Prisoners’ Dilemma?," Review of Network Economics, De Gruyter, vol. 12(4), pages 343-353, January.
    • Handle: RePEc:bpj:rneart:v:12:y:2014:i:4:p:343-353:n:3
    DOI: 10.1515/rne-2013-0114
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    References listed on IDEAS

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    7. Fanti, Luciano & Buccella, Domenico, 2015. "Bargaining agenda in a unionised monopoly with network effects," MPRA Paper 64090, University Library of Munich, Germany.
    8. Anomita Ghosh & Rupayan Pal, "undated". "Welfare ranking of alternative export tariffs revisited," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-009, Indira Gandhi Institute of Development Research, Mumbai, India.
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    18. Song, Ruichao & Wang, Leonard F.S., 2017. "Collusion in a differentiated duopoly with network externalities," Economics Letters, Elsevier, vol. 152(C), pages 23-26.
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    21. Leonard F. S. Wang & Domenico Buccella, 2023. "The Timing of Technology Adoption in Network Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(4), pages 367-392, June.

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