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Stock-Related Compensation and Product-Market Competition

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Author Info

  • Giancarlo Spagnolo

Abstract

I show that as long as the stock market has perfect foresight, profits are distributed as dividends, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation, making collusion supportable at any discount factor. The results hold with managerial contracts of any length.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 31 (2000)
Issue (Month): 1 (Spring)
Pages: 22-42

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Handle: RePEc:rje:randje:v:31:y:2000:i:spring:p:22-42

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Cited by:
  1. Siegert, Caspar, 2014. "Bonuses and managerial misbehaviour," European Economic Review, Elsevier, vol. 68(C), pages 93-105.
  2. Spagnolo, Giancarlo, 2005. "Managerial incentives and collusive behavior," European Economic Review, Elsevier, vol. 49(6), pages 1501-1523, August.
  3. Giacinta Cestone & Chiara Fumagalli, 2003. "Winner-Picking or Cross-Subsidization? The Strategic Impact of Resource Flexibility in Business Groups," CSEF Working Papers 93, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Cestone, Giacinta & Fumagalli, Chiara, 2001. "Internal Capital Markets, Cross-Subsidization and Product Market Competition," CEPR Discussion Papers 2935, C.E.P.R. Discussion Papers.
  5. Gea M. Lee, 2008. "Optimal Collusion with Internal Contracting," Development Economics Working Papers 22466, East Asian Bureau of Economic Research.
  6. Aubert, C├ęcile, 2009. "Managerial Effort Incentives and Market Collusion," TSE Working Papers 09-127, Toulouse School of Economics (TSE).
  7. Jaideep Chowdhury, 2014. "Impact of financial constraint on incentive compensation and product market behavior," Economics Bulletin, AccessEcon, vol. 34(1), pages 115-124.
  8. Salvatore Piccolo & Giancarlo Spagnolo, 2014. "Debt, Managers and Cartels," CSEF Working Papers 365, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. R. Andergassen, 2011. "Board of director collusion, managerial incentives and firm values," Working Papers wp795, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Neubecker, Leslie, 2005. "Collusion and cyclic pricing by managers in markets with fluctuating demand," Economics Letters, Elsevier, vol. 88(2), pages 164-169, August.

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