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Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment

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  • Constantine Manasakis
  • Evangelos Mitrokostas
  • Emmanuel Petrakis

Abstract

In a differentiated Cournot duopoly, we examine the contracts that firms' owners use to compensate their managers and the resulting output levels, profits and social welfare. If products are either sufficiently differentiated or sufficiently close substitutes, owners use Relative Performance contracts. For intermediate levels of product substitutability, they use Market Share contracts. When owners do not commit over the types of contracts, each type is an owner's best response to his rival's choice. Product substitutability has differential effects on output levels and profits, depending on the configuration of contracts in the industry. Finally, managerial incentive contracts are welfare enhancing if they increase consumers' surplus. Copyright (C) 2010 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1507
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Bibliographic Info

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

Volume (Year): 31 (2010)
Issue (Month): 8 (December)
Pages: 531-543

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Handle: RePEc:wly:mgtdec:v:31:y:2010:i:8:p:531-543

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

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  5. Levent Kockesen & Efe A. Ok, 2004. "Strategic Delegation By Unobservable Incentive Contracts," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 397-424, 04.
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  7. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
  8. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
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  16. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
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Cited by:
  1. Chirco, Alessandra & Scrimitore, Marcella, 2013. "Choosing price or quantity? The role of delegation and network externalities," Economics Letters, Elsevier, vol. 121(3), pages 482-486.
  2. Luciano Fanti & Nicola Meccheri, 2010. "Labour incentive schemes in a Cournot duopoly with simple institutional constraints," Discussion Papers 2010/103, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  3. Nicola Meccheri & Luciano Fanti, 2012. "Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation," Working Paper Series 44_12, The Rimini Centre for Economic Analysis.
  4. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
  5. Michael Kopel & Luca Lambertini, 2013. "On Price Competition with Market Share Delegation Contracts," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(1), pages 40-43, 01.
  6. Evangelos Mitrokostas & Emmanuel Petrakis, 2011. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Working Papers 2011/09, Economics Department, Universitat Jaume I, Castellón (Spain).

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