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Strategic delegation in price competition

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  • Güth, Werner
  • Pull, Kerstin
  • Stadler, Manfred

Abstract

We study price competition in heterogeneous markets where price decisions are delegated to agents. Principals implement a revenue sharing scheme to which agents react by commonly charging a sales price. The results of our model exemplify the importance of both intrafirm- and interfirm interactions of principals and agents in competition. We show that price delegation can increase or decrease the firms' surplus depending on the heterogeneity of the market and the number of agents employed by the firms. --

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Bibliographic Info

Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 43.

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Date of creation: 2012
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Handle: RePEc:zbw:tuewef:43

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Keywords: Strategic delegation; Agency theory; Revenue sharing;

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  1. 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.
  2. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(2), pages 191-213, April.
  3. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, Econometric Society, vol. 51(1), pages 7-45, January.
  4. Matthias Kräkel, 2005. "Strategic delegation in oligopolistic tournaments," Review of Economic Design, Springer, Springer, vol. 9(4), pages 377-396, December.
  5. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 3(2), pages 245-253, June.
  7. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  8. Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, Econometric Society, vol. 63(3), pages 621-46, May.
  9. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics, University of Munich, Department of Economics 19772, University of Munich, Department of Economics.
  10. Chaim Fershtman & Kenneth L. Judd, 2006. "Equilibrium Incentives in Oligopoly: Corrigendum," American Economic Review, American Economic Association, American Economic Association, vol. 96(4), pages 1367-1367, September.
  11. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
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Cited by:
  1. Güth, Werner & Pull, Kerstin & Stadler, Manfred, 2014. "Delegation, worker compensation, and strategic competition," University of Tuebingen Working Papers in Economics and Finance 67, University of Tuebingen, Faculty of Economics and Social Sciences.

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