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The Bargaining–sales‐delegation Game

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  • Luciano Fanti
  • Luca Gori
  • Mauro Sodini

Abstract

This article revisits the managerial delegation literature led by Vickers ( ), Fershtman and Judd ( ) and Sklivas ( ) by introducing a bargaining mechanism between owners and managers over managerial contracts. It shows that the degree of bargaining interacts with the extent of product differentiation in determining whether the sub‐game perfect Nash equilibrium is sales delegation or profit maximisation. In contrast with the classical result, no sales delegation emerges and the typical prisoner's dilemma of the managerial delegation literature is solved. This holds in both contexts of Cournot and Bertrand rivalries. The article also provides results for the more general cases with heterogeneous managerial bargaining power and endogenous decisions of the owners regarding the bargaining power of the manager that should be or not be hired in a firm. Copyright © 2016 John Wiley & Sons, Ltd.

Suggested Citation

  • Luciano Fanti & Luca Gori & Mauro Sodini, 2017. "The Bargaining–sales‐delegation Game," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(6), pages 857-889, September.
    • Handle: RePEc:wly:mgtdec:v:38:y:2017:i:6:p:857-889
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    Cited by:

    1. Fanti, Luciano & Buccella, Domenico, 2018. "Firms Controlled by Owners and Managerial Firms: The 'Strategic' Trade Policy Game Revisited," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 71(1), pages 51-72.
    2. Fanti, Luciano & Gori, Luca & Sodini, Mauro, 2018. "Codetermination and product differentiation," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 390-403.
    3. Xingtang Wang & Leonard F.S. Wang, 2021. "External bargaining versus internal manipulation: A theory of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 134-142, January.
    4. Wang, Xingtang & Wang, Leonard F.S., 2021. "Vertical product differentiation, managerial delegation and social welfare in a vertically-related market," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 149-159.
    5. Stefano Colombo, 2022. "Prisoner dilemma in a vertical duopoly with managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1476-1481, July.

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