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Strategic delegation in experimental markets

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  • Huck, S.
  • Müller, W.

    (Tilburg University)

  • Normann, H.T.

Abstract

In this experiment, we analyze strategic delegation in a Cournot duopoly. Owners can choose among two different contracts which determine their managers' salaries. One contract simply gives managers incentives to maximize firm profits, while the second contract gives an additional sales bonus. Although theory predicts the second contract to be chosen, it is only rarely chosen in the experimental markets. This behavior is rational given that managers do not play according to the subgame perfect equilibrium prediction when asymmetric contracts are given.

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-140880.

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Date of creation: 2004
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Publication status: Published in International Journal of Industrial Organization (2004) v.22, p.561-574
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-140880

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Web page: http://www.tilburguniversity.edu/

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  1. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  2. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  3. Fershtman, C & Gneezy, U, 1996. "Strategic Delegation : An Experiment," Papers 43-96, Tel Aviv.
  4. Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Mergers In Oligopoly," Working Papers. Serie AD 1999-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Selten, Reinhard, 1994. "Multistage Game Models and Delay Supergames," Nobel Prize in Economics documents 1994-3, Nobel Prize Committee.
  6. Lambertini, Luca & Trombetta, Marco, 2002. "Delegation and firms' ability to collude," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 359-373, April.
  7. Cooper, R. & DeJong, D.W. & Ross, T.W., 1992. "Cooperation without Reputation: Experimental Evidence from Prisoner's Dilemma Games," Papers 36, Boston University - Industry Studies Programme.
  8. Steffen Huck & Wieland Mueller, 1998. "Perfect versus imperfect observability---An experimental test of Bagwell's result," Experimental 9804001, EconWPA.
  9. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
  10. Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
  13. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  14. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
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