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Managerial Delegation, Cost Asymmetry and Social Efficiency of Entry

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  • Arijit Mukherjee
  • Yingyi Tsai

Abstract

type="main" xml:id="ecor12079-abs-0001"> This article examines the welfare implications of entry in oligopolistic markets with separation of management from ownership. In the presence of strategic managerial delegation and cost asymmetry, entry is socially insufficient unless the degree of scale economies is large. This result is in stark contrast to those documented in the extant literature. A key feature of our analysis is that a ‘business stealing’ effect (Mankiw & Whinston, 1986) does not arise for the relatively cost-efficient entrant under managerial delegation. The policy implication emerging from our analysis suggests that entry should be encouraged in industries with strategic managerial delegation, cost asymmetry and not large-scale economies.

Suggested Citation

  • Arijit Mukherjee & Yingyi Tsai, 2014. "Managerial Delegation, Cost Asymmetry and Social Efficiency of Entry," The Economic Record, The Economic Society of Australia, vol. 90(288), pages 90-97, March.
    • Handle: RePEc:bla:ecorec:v:90:y:2014:i:288:p:90-97
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    File URL: http://hdl.handle.net/10.1111/ecor.2014.90.issue-288
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    Cited by:

    1. Marco de Pinto & Lazlo Goerke & Alberto Palermo, 2023. "Informational Rents and the Excessive Entry Theorem: The Case of Hidden Action," IAAEU Discussion Papers 202301, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. Chung-Hui Chou, 2023. "An analysis of managerial delegation in a market with vertically-integrated producer owning an essential input monopolistically," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 247-265, February.
    3. de Pinto, Marco & Goerke, Laszlo & Palermo, Alberto, 2023. "On the welfare effects of adverse selection in oligopolistic markets," Games and Economic Behavior, Elsevier, vol. 138(C), pages 22-41.
    4. Laszlo Goerke, 2022. "Partisan competition authorities, Cournot‐oligopoly, and endogenous market structure," Southern Economic Journal, John Wiley & Sons, vol. 89(1), pages 238-270, July.

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