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Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation

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  • Nicola Meccheri

    ()
    (Department of Economics, University of Pisa, Italy)

  • Luciano Fanti

    ()
    (Department of Economics, University of Pisa, Italy)

Abstract

In this paper we study how managerial delegation schemes in a duopoly product market interact with wage decisions taken by a monopoly central (industry-wide) union in the labour market. We analyse a model where, at the first stage, firms’ owners optimally choose for their managers a delegation contract that can be “sales delegation” or “relative profit delegation”; at the second stage, the union fixes the wage for all (non-managerial) workers in the industry; and finally, at the third stage, managers compete in the product market. Interestingly, our results prove to be more varied with respect to findings by the managerial delegation literature with exogenous production costs for firms. Most notably, it is pointed out that, in equilibrium, both firm profitability and welfare outcomes can be superior under both sales delegation and relative profit delegation, depending on various factors such as the degree of product differentiation and the competition regime.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 44_12.

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Date of creation: Jun 2012
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Handle: RePEc:rim:rimwps:44_12

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Keywords: sales delegation; relative profit delegation; unionised duopoly; endogenous wage;

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