IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v41y2020i8p1621-1628.html
   My bibliography  Save this article

Incentive pay and rent in oligopoly

Author

Listed:
  • Henrik Vetter

Abstract

Our purpose is to examine strategic delegation in nonlinear Cournot oligopoly. The findings generalize earlier results and show that managerial contracts reward sales under the condition of a fixed input price. Alternatively, under a variable input price, owners might punish sales even when goods are strategic substitutes. We conclude that optimal strategic motivation depends critically on the input price. For example, motivation that supports positive owner profit under a fixed input price nullifies owner‐profit if an upstream monopolist with convex costs sets the input price. In a vertical relationship between a duopoly and an upstream monopolist, strategic delegation punishes sales.

Suggested Citation

  • Henrik Vetter, 2020. "Incentive pay and rent in oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1621-1628, December.
    • Handle: RePEc:wly:mgtdec:v:41:y:2020:i:8:p:1621-1628
    DOI: 10.1002/mde.3208
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.3208
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.3208?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Federico Etro, 2010. "Endogenous Market Structures and Contract Theory," Working Papers 181, University of Milano-Bicocca, Department of Economics, revised Mar 2010.
    2. Caillaud, Bernard & Rey, Patrick, 1995. "Strategic aspects of vertical delegation," European Economic Review, Elsevier, vol. 39(3-4), pages 421-431, April.
    3. Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-524, June.
    4. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    5. Szymanski, Stefan, 1994. "Strategic delegation with endogenous costs : A duopoly with wage bargaining," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 105-116, March.
    6. Pal, Rupayan, 2015. "Cournot vs. Bertrand under relative performance delegation: Implications of positive and negative network externalities," Mathematical Social Sciences, Elsevier, vol. 75(C), pages 94-101.
    7. Eun-Soo Park, 2002. "Vertical externality and strategic delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(3), pages 137-141.
    8. Denis Claude, 2018. "A reconsideration of the link between vertical externality and managerial incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(5), pages 526-534, July.
    9. Ishita Chatterjee & Bibhas Saha, 2017. "Bilateral Delegation in Duopoly Wage and Employment Bargaining," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(4), pages 607-621, June.
    10. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    11. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    12. Lee, DongJoon & Choi, Kangsik & Han, Jae-Joon, 2018. "Strategic delegation under fulfilled expectations," Economics Letters, Elsevier, vol. 169(C), pages 80-82.
    13. Luciano Fanti & Luca Gori & Mauro Sodini, 2017. "Managerial Delegation Theory Revisited," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(4), pages 490-512, June.
    14. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yasuhiro Arai & Noriaki Matsushima, 2023. "The impacts of suppliers and mutual outsourcing on organizational forms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(1), pages 114-132, February.
    2. 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.
    3. Cong Pan & DongJoon Lee & Kangsik Choi, 2020. "Firms’ strategic delegation with heterogeneous consumers," Journal of Economics, Springer, vol. 131(3), pages 199-221, December.
    4. Nicola Meccheri, 2021. "Biased managers in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 724-736, April.
    5. Denis Claude & Mabel Tidball, 2020. "Managerial Incentives and Polluting Inputs Under Imperfect Competition," International Series in Operations Research & Management Science, in: Pierre-Olivier Pineau & Simon Sigué & Sihem Taboubi (ed.), Games in Management Science, pages 165-186, Springer.
    6. 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.
    7. Chung-Hui Chou, 2020. "Do Consumers Gain or Lose when Network Externalities Become Stronger?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2193-2200.
    8. Michael Kopel & Eva Maria Putz, 2021. "Sharing managerial contract information in a vertically related market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 1037-1047, June.
    9. Buccella Domenico & Meccheri Nicola, 2024. "Management Centrality in Sequential Bargaining: Implications for Strategic Delegation, Welfare, and Stakeholder Conflict," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 159-193, January.
    10. Nicola Meccheri, 2019. "Biased managers in a vertical structure," Working Paper series 19-12, Rimini Centre for Economic Analysis.
    11. Leonard F. S. Wang, 2020. "Relative Performance Versus Market Share Delegation in a Vertically Related Market," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(1), pages 16-27, June.
    12. Habiger, Peter & Kopel, Michael, 2020. "Strategic delegation in successive oligopolies with differentiated firms," Economics Letters, Elsevier, vol. 194(C).
    13. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    14. 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.
    15. Luciano Fanti & Marcella Scrimitore, 2019. "How to Compete? Cournot versus Bertrand in a Vertical Structure with an Integrated Input Supplier," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 796-820, January.
    16. Yasuhiko Nakamura, 2021. "Price versus quantity in a duopoly with network externalities under active and passive expectations," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 120-133, January.
    17. Luciano Fanti & Marcella Scrimitore, 2017. "How to compete? Cournot vs. Bertrand in a vertical structure with an integrated input supplier," Discussion Papers 2017/221, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    18. Luciano Fanti, 2017. "An Observable Delay Game with Unionised Managerial Firms," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(1), pages 50-69, February.
    19. Rupayan Pal, 2010. "Cooperative Managerial Delegation, R&D And Collusion," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 155-169, April.
    20. Gregory E. Goering & T. Harikumar, 1999. "Investment decisions and managerial compensation design in the presence of product market rivalry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 87-97.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:41:y:2020:i:8:p:1621-1628. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.