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Strategic delegation and mergers in oligopolistic contests

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  • Krakel, Matthias
  • Sliwka, Dirk

Abstract

In this paper, we combine the strategic delegation approach of Fershtman-Judd-Sklivas with contets. The results show that besides a symmetric equilibrium there also exist asymmetric equilibria in which one owner induces pure sales maximization to his manager so that all the other firms drop out of the market. If merging is allowed on an initial stage, the resulting merged subgame perfect equilibria show that there is strictly more merging under contest than under Cournot competition. We also compare our findings with the previous results on contest models with delegation and find that the outcomes for the Fershtman-Judd-Sklivas incentive scheme clearly differ. Especially, in our model we have a prisoner`s-dilemma like situation where delegation is individually rational for each owner, but all owners are worse off compared to non-delegation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 58 (2006)
Issue (Month): 2 ()
Pages: 119-136

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Handle: RePEc:eee:jebusi:v:58:y:2006:i:2:p:119-136

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Web page: http://www.elsevier.com/locate/jeconbus

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Citations

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Cited by:
  1. Barnard Franck & Nicolas Le Pape, 2010. "Bankruptcy Risk, Product Market Competition and Horizontal Mergers," TEPP Working Paper 2010-19, TEPP.
  2. 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.
  3. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  4. repec:tep:teppwp:wp1019 is not listed on IDEAS
  5. T. Guse & B. Hehenkamp, 2006. "The strategic advantage of interdependent preferences in rent-seeking contests," Public Choice, Springer, vol. 129(3), pages 323-352, December.
  6. Jost, Peter-J., 2011. "Joint ventures in patent contests with spillovers and the role of strategic budgeting," Journal of Economics and Business, Elsevier, vol. 63(6), pages 605-637.
  7. Bernard Franck & Nicolas Le Pape, 2010. "Bankruptcy Risk, Product Market Competition and Horizontal Mergers," Working Papers halshs-00812086, HAL.

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