Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment
AbstractIn 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.
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Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 0905.
Date of creation: 15 Jun 2009
Date of revision:
Oligopoly; Managerial delegation; Endogenous contracts;
Other versions of this item:
- Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2010. "Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 531-543, December.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-BEC-2009-07-03 (Business Economics)
- NEP-COM-2009-07-03 (Industrial Competition)
- NEP-CTA-2009-07-03 (Contract Theory & Applications)
- NEP-MIC-2009-07-03 (Microeconomics)
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