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Managerial Incentives and Stackelberg Equilibria in Oligopoly

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  • Scrimitore, Marcella

Abstract

The paper investigates both quantity and price oligopoly games in markets with a variable number of managerial and entrepreneurial firms which defines market structure. Following Vickers (Economic Journal, 1985) which establishes an equivalence between the equilibrium under unilateral delegation and the Stackelberg quantity equilibrium, the outcomes of these games are compared with the ones in sequential multi-leaders and multi-followers games. The profitability of a managerial/entrepreneurial attitude vs leadership/followership is shown to critically depend upon the kind of strategy, price or quantity, and upon the assumed market structure. Indeed, the latter turns out to be crucial in determining the equivalence result that is shown to be contingent on the assumption that just one leader or one managerial firm operate in the market. A welfare analysis finally highlights the differences between the delegation and the sequential games, focusing on the impact of market structure and imperfect substitutability on the equilibria of the two games.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24245.

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Date of creation: Aug 2010
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Handle: RePEc:pra:mprapa:24245

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Keywords: Strategic delegation; sequential games; quantity and price competition; welfare analysis;

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  1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, Elsevier, vol. 2(1), pages 29-46, March.
  2. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 927-40, December.
  3. Damme, E.E.C. van & Hurkens, J.P.M., 1999. "Endogenous Stackelberg leadership," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154410, Tilburg University.
  4. Hiroaki Ino & Toshihiro Matsumura, 2009. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," Discussion Paper Series, School of Economics, Kwansei Gakuin University 48, School of Economics, Kwansei Gakuin University, revised Oct 2009.
  5. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1231-37, December.
  6. Boyer, M. & Moreaux, M., 1985. "On Stackelberg Equilibria with Differentiated Products: the Critical Role of the Strategy Space," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8524, Universite de Montreal, Departement de sciences economiques.
  7. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  8. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
  9. Lambertini, Luca & Trombetta, Marco, 2002. "Delegation and firms' ability to collude," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 47(4), pages 359-373, April.
  10. Barros, Fatima & Grilo, Isabel, 2002. "Delegation in a Vertically Differentiated Duopoly," Manchester School, University of Manchester, University of Manchester, vol. 70(1), pages 164-84, January.
  11. Pedro Rey Biel & Steffen Huck, 2005. "Endogenous Leadership in Teams," Microeconomics, EconWPA 0506004, EconWPA.
  12. Luca Lambertini, 1996. "Strategic Delegation and the Shape of Market Competition," Working Papers 267, Dipartimento Scienze Economiche, Universita' di Bologna.
  13. Amir, Rabah & Stepanova, Anna, 2006. "Second-mover advantage and price leadership in Bertrand duopoly," Games and Economic Behavior, Elsevier, Elsevier, vol. 55(1), pages 1-20, April.
  14. Huck, Steffen & Konrad, Kai A. & Muller, Wieland, 2001. "Big fish eat small fish: on merger in Stackelberg markets," Economics Letters, Elsevier, Elsevier, vol. 73(2), pages 213-217, November.
  15. 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, Elsevier, vol. 17(4), pages 877-896, November.
  16. Basu, Kaushik, 1995. "Stackelberg equilibrium in oligopoly: An explanation based on managerial incentives," Economics Letters, Elsevier, Elsevier, vol. 49(4), pages 459-464, October.
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