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Executive compensation and competitive pressure in the product market: How does firm entry shape managerial incentives?

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  • Dam, Kaniṣka
  • Robinson-Cortés, Alejandro

Abstract

Motivated by empirical evidence, we develop an incentive contracting model under oligopolistic competition to study how incumbent firms adjust managerial incentives following deregulation policies that enhance competition. We show that firms elicit higher managerial effort by offering stronger incentives as an optimal response to entry, as long as incumbent firms act as production leaders. Our model draws a link between an industry-specific feature, the time needed to build production capacity, and the effect that product market competition has on executive compensation. We offer novel testable implications regarding how this industry-specific feature shapes the incentive structure of executive pay.

Suggested Citation

  • Dam, Kaniṣka & Robinson-Cortés, Alejandro, 2020. "Executive compensation and competitive pressure in the product market: How does firm entry shape managerial incentives?," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 60-77.
    • Handle: RePEc:eee:matsoc:v:106:y:2020:i:c:p:60-77
    DOI: 10.1016/j.mathsocsci.2020.03.001
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    Cited by:

    1. Kanishka Dam & Prabal Roy Chowdhury, 2020. "Race to collusion: Monitoring and incentive contracts for loan officers under multiple-bank lending," Discussion Papers 20-05, Indian Statistical Institute, Delhi.

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