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Managerial delegation in monopoly under network effects

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  • Trishita Bhattacharjee

    ()
    (Indira Gandhi Institute of Development Research)

  • Rupayan Pal

    ()
    (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth)

Abstract

This paper examines the possibility of emergence of incentive equilibrium in the case of monopoly, without relying on agency theory based arguments. It shows that, when there is network effect of consumption, it is optimal for a monopolist to offer sales-oriented incentive scheme to her manager. The extent of sales-orientation of the optimal incentive scheme is higher in the case of stronger network effect. It also shows that both the monopolist and consumers are better off under managerial delegation than in case of no delegation, unlike as in the case of usual oligopoly without network effect.

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Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2013-009.

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Length: 18 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:ind:igiwpp:2013-009

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Keywords: Incentive equilibrium; Managerial delegation; Monopoly; Network effects;

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  1. Church, Jeffrey & Ware, Roger, 1996. "Delegation, market share and the limit price in sequential entry models," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 575-609, July.
  2. White, Mark D., 2001. "Managerial incentives and the decision to hire managers in markets with public and private firms," European Journal of Political Economy, Elsevier, vol. 17(4), pages 877-896, November.
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  4. Gonzalez-Maestre, Miguel & Lopez-Cunat, Javier, 2001. "Delegation and mergers in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1263-1279, September.
  5. Hoernig, Steffen, 2012. "Strategic delegation under price competition and network effects," Economics Letters, Elsevier, vol. 117(2), pages 487-489.
  6. Rupayan Pal, 2009. "Delegation and emission tax in a differentiated oligopoly," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2009-007, Indira Gandhi Institute of Development Research, Mumbai, India.
  7. 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.
  8. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
  9. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  10. Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2002. "Environmental taxes and strategic delegation," Spanish Economic Review, Springer, vol. 4(4), pages 301-309.
  11. Rupayan Pal, 2010. "Cooperative Managerial Delegation, R&D And Collusion," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 155-169, 04.
  12. Ziss, Steffen, 2001. "Horizontal mergers and delegation," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 471-492, March.
  13. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
  14. Das, Satya P., 1997. "Strategic managerial delegation and trade policy," Journal of International Economics, Elsevier, vol. 43(1-2), pages 173-188, August.
  15. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  16. Basu, Kaushik & Ghosh, Arghya & Ray, Tridip, 1997. "The Babu and Boxwallah: Managerial Incentives and Government Intervention in a Developing Economy," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 71-90, February.
  17. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
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