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Relative performance as a strategic commitment mechanism

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  • Nolan Miller

    (John F. Kennedy School of Government, Harvard University, USA)

  • Amit Pazgal

    (John M. Olin School of Business, Washington University, St. Louis, MO 63130, USA)

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    Abstract

    Can managers' personality traits be of use to profit maximizing firm owners? We investigate the case where managers have a variety of attitudes toward relative performance that are indexed by their type. We consider two stage games where profit maximizing owners select managers in the first stage, and these managers, knowing each other's types, compete in a duopoly game in the second stage. The equilibria of various types of competition are derived and comparisons are made to the standard case where managers are profit maximizers. We show that managers' types can be used as a strategic commitment device that can increase firm profits in certain environments. Copyright © 2002 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1045
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 23 (2002)
    Issue (Month): 2 ()
    Pages: 51-68

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    Handle: RePEc:wly:mgtdec:v:23:y:2002:i:2:p:51-68

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Wansbeek, T.J. & Kapteyn, A.J., 1982. "Empirical evidence on preference formation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364313, Tilburg University.
    2. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262192756, December.
    3. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    4. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 927-40, December.
    5. Fumas, Vicente Salas, 1992. "Relative performance evaluation of management : The effects on industrial competition and risk sharing," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 10(3), pages 473-489, September.
    6. Basu, Kaushik, 1995. "Stackelberg equilibrium in oligopoly: An explanation based on managerial incentives," Economics Letters, Elsevier, Elsevier, vol. 49(4), pages 459-464, October.
    7. David Donaldson & Hugh Neary, 1984. "Decentralized Control of a Socialist Industry," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 17(1), pages 99-110, February.
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