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Strategic delegation in experimental markets

Author

Listed:
  • Huck, S.
  • Müller, W.

    (Tilburg University, School of Economics and Management)

  • 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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Huck, S. & Müller, W. & Normann, H.T., 2004. "Strategic delegation in experimental markets," Other publications TiSEM 64e031eb-d6bb-4b12-8b1e-1, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:64e031eb-d6bb-4b12-8b1e-1deebd886521
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    References listed on IDEAS

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    Cited by:

    1. Doruk İriş & Jungmin Lee & Alessandro Tavoni, 2015. "Delegation and public pressure in a threshold public goods game: theory and experimental evidence," GRI Working Papers 186, Grantham Research Institute on Climate Change and the Environment.
    2. Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 67-87.
    3. Engelmann, Dirk & Normann, Hans-Theo, 2007. "An experimental test of strategic trade policy," Journal of Economic Behavior & Organization, Elsevier, vol. 64(1), pages 144-156, September.
    4. Oechssler, Jorg & Schuhmacher, Frank, 2004. "The limited liability effect in experimental duopoly markets," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 163-184, February.
    5. Doruk İriş & Jungmin Lee & Alessandro Tavoni, 2015. "Delegation and public pressure in a threshold public goods game: theory and experimental evidence," GRI Working Papers 186, Grantham Research Institute on Climate Change and the Environment.
    6. Raab, Philippe & Schipper, Burkhard C., 2009. "Cournot competition between teams: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 691-702, November.
    7. Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
    8. Peter H. Kriss & Roberto Weber, 2013. "Organizational formation and change: lessons from economic laboratory experiments," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 14, Edward Elgar Publishing.
    9. Du, Ninghua & Heywood, John S. & Ye, Guangliang, 2013. "Strategic delegation in an experimental mixed duopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 91-100.
    10. Sutan, Angela & Vranceanu, Radu, 2016. "Lying about delegation," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 29-40.
    11. Raab, Philippe & Schipper, Burkhard C., 2009. "Cournot competition between teams: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 691-702, November.
    12. John S. Heywood & Guangliang Ye, 2009. "Delegation in a mixed oligopoly: the case of multiple private firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 71-82.
    13. Choi Kangsik & Lee Ki-Dong & Lim Seonyoung, 2020. "Managerial Delegation of Competing Vertical Chains with Vertical Externality," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(2), pages 1-18, June.
    14. Barreda-Tarrazona, Iván & Georgantzís, Nikolaos & Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2016. "Endogenous managerial compensation contracts in experimental quantity-setting duopolies," Economic Modelling, Elsevier, vol. 54(C), pages 205-217.
    15. Lisa Bruttel & Simeon Schudy, 2012. "Competition Within Firms," Journal of Competition Law and Economics, Oxford University Press, vol. 8(1), pages 167-185.
    16. Axel Sonntag & Daniel John Zizzo, 2015. "Institutional authority and collusion," Southern Economic Journal, John Wiley & Sons, vol. 82(1), pages 13-37, July.
    17. Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Strategic Delegation in Experimental Duopolies with Endogenous Incentive Contracts," Working Papers 0809, University of Crete, Department of Economics.
    18. Armstrong, Mark & Huck, Steffen, 2010. "Behavioral economics as applied to firms: a primer," MPRA Paper 20356, University Library of Munich, Germany.
    19. Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
    20. Jan Potters & Sigrid Suetens, 2013. "Oligopoly Experiments In The Current Millennium," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 439-460, July.
    21. Ricardo Biscaia & Paula Sarmento, 2013. "Location Decisions in a Natural Resource Model of Cournot Competition," ERSA conference papers ersa13p1146, European Regional Science Association.
    22. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    23. Lai, Ernest K. & Lim, Wooyoung, 2012. "Authority and communication in the laboratory," Games and Economic Behavior, Elsevier, vol. 74(2), pages 541-560.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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