The paper studies managerial incentives in a model where managers choose product market strategies and make takeover decisions. The equilibrium contract includes an incentive to increase the firm's sales, under either quantity or price competition. This result contrasts with previous findings in the literature, and hinges on the fact that when managers are more aggressive, rival firms earn lower profits and thus are willing to well out at a lower price. However, as a side-effect of such a contract, the manager might undertake unprofitable takeovers.
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Paper provided by Valencia - Instituto de Investigaciones Economicas in its series Papers with number
96-22.
Find related papers by JEL classification: M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
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Oliver Gürtler & Matthias Kräkel, 2006.
"Mergers, Litigation and Efficiency,"
Discussion Papers
185, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!]
F. Javier Casado-Izaga & Juan Carlos Barcena-Ruiz, 1999.
"Should Owners of Firms Delegate Long-run Decisions?,"
BILTOKI
199911, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
[Downloadable!]