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Oligopolistic Screening and Two-way Distortion

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  • Michela Cella

    ()
    (Department of Economics, University Of Milan, Bicocca)

  • Federico Etro

    ()
    (Department of Economics, University Of Venice, Ca’ Foscari)

Abstract

We analyze the choice of incentive contracts by oligopolistic firms that compete on the product market. Managers have private information and in the first stage they exert cost reducing effort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings.

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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2010_28.

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Length: 27
Date of creation: 2010
Date of revision:
Handle: RePEc:ven:wpaper:2010_28

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Keywords: Oligopoly; screening; two way distortion; incentives; RD investment;

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References

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  1. Ivaldi, M. & Martimort, D., 1992. "Competition Under Nonlinear Pricing," Papers 93.288, Toulouse - GREMAQ.
  2. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
  3. Martimort, D., 1992. "Exclusive Dealing, Common Agency and Multiprincipals Incentive Thoery," Papers 92.278, Toulouse - GREMAQ.
  4. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
  5. Piccolo, Salvatore & D'Amato, Marcello & Martina, Riccardo, 2008. "Product market competition and organizational slack under profit-target contracts," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1389-1406, November.
  6. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
  7. Lockwood, Ben, 2000. "Production Externalities and Two-way Distortion in Principal-multi-agent Problems," Journal of Economic Theory, Elsevier, vol. 92(1), pages 142-166, May.
  8. Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
  9. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  10. Federico Etro & Michela Cella, 2010. "EQUILIBRIUM PRINCIPAL-AGENT CONTRACTS Competition and R&D Incentives," Working Papers 180, University of Milano-Bicocca, Department of Economics, revised Mar 2010.
  11. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
  12. Bertoletti, Paolo & Poletti, Clara, 1996. "A Note on Endogenous Firm Efficiency in Cournot Models of Incomplete Information," Journal of Economic Theory, Elsevier, vol. 71(1), pages 303-310, October.
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Cited by:
  1. Salvatore Piccolo, 2011. "Communicating Vertical Hierarchies: the Adverse Selection Case," CSEF Working Papers 273, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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