Delegation and commitment in durable goods monopolies
AbstractThis paper studies a simultaneous-move infinite-horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort. The delegation contract allows for continual interference with managerial incentives: in each period the principal rewards the manager according to her performance. We show that when the cost of delegation is low relative to profits, the principal can attain the precommitment price plan in a perfect rational expectations equilibrium. The paper analyzes the robustness of this result under alternative specifications of timing and objectives. We also provide a numerical characterization of the equilibrium strategies for the case of linear-quadratic payoffs.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 63 (2008)
Issue (Month): 1 (May)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622836
Other versions of this item:
- Tarek Coury & Vladimir P. Petkov, 2007. "Delegation and Commitment in Durable Goods Monopolies," Economics Series Working Papers 336, University of Oxford, Department of Economics.
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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