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Location choice with delegation: Bertrand vs. Cournot competition

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  • Liang, Wen-Jung
  • Tseng, Ching-Chih
  • Wang, Kuang-Cheng Andy

Abstract

The conventional wisdom indicates that firms' optimal locations are sensitive to the modes of product-market competition, leading to a difficulty for firms to make concrete location decisions. This difficulty is especially crucial for the high entry-cost firms. The paper develops an uncovered-market model à la Economides (1984) to explore this sensitivity by taking into account a delegation game. It shows that firms' location configurations remain unchanged regardless of the modes of product-market competition as the owners offer the managers a contract with a relative-performance incentive scheme. Moreover, the paper shows that, by introducing a delegation game, the competition between managers under Bertrand competition is mitigated such that the managers have no incentive to choose price undercutting as they locate themselves far enough away from each other.

Suggested Citation

  • Liang, Wen-Jung & Tseng, Ching-Chih & Wang, Kuang-Cheng Andy, 2011. "Location choice with delegation: Bertrand vs. Cournot competition," Economic Modelling, Elsevier, vol. 28(4), pages 1774-1781, July.
    • Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1774-1781
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    Cited by:

    1. Bian, Junsong & Lai, Kin Keung & Hua, Zhongsheng & Zhao, Xuan & Zhou, Guanghui, 2018. "Bertrand vs. Cournot competition in distribution channels with upstream collusion," International Journal of Production Economics, Elsevier, vol. 204(C), pages 278-289.
    2. John S. Heywood & Zheng Wang, 2016. "Strategic delegation under spatial price discrimination," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 193-213, March.
    3. John S. Heywood & Zheng Wang, 2020. "Delivered pricing and endogenous delegation of contract type," Australian Economic Papers, Wiley Blackwell, vol. 59(3), pages 232-249, September.

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