In this paper, we consider a two-stage (sequential) game as introduced by Vickers (1985),Fershtman (1985), Fershtman and Judd (1987) and Sklivas (1987). This game models the situation where the owners of competing firms manipulate their managers'' incentive contracts for strategic reasons. Instead of the sales volume as part of these contracts, we introduce market share, besides profit, as a natural part of managers'' incentives. Then we compare the results with those obtained for combinations of profits and sales volume, as well as for the classical Cournot model. Concerning an {\eightit n}-firm oligopoly, and compared to the sales-delegation case, it appears that owners put more emphasis on managerial profit-maximizing behavior, indicated by smaller weights attributed to market share in managerial incentive contracts. Social welfare corresponding to the market share-delegation case almost equals welfare associated with the sales-delegation case. However, its components differ.The case of market share-delegation leads to a higher profitability of incumbent rivals and to a lower consumer surplus, in comparison to the sales-delegation case. One may state that the owner''s strategic use of market share as a managerial incentive leads to a (partial) shift of benefits from consumers to producers.
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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number
051.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Chaim Fershtman & Kenneth L Judd, 1984.
"Equilibrium Incentives in Oligopoly,"
Discussion Papers
642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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