Delegation in a Vertically Differentiated Duopoly
In a context of vertical product differentiation we analyze the effect of delegation on quality levels. We consider a duopoly where firms can delegate the quality-determining activities to an agent. The realization of the random cost associated with the quality level is known, at no cost, by the firm or the agent that undertakes these activities. By delegating, a firm faces an asymmetry of information since the owner cannot observe the realization of the random variable, which is the agent's private information. When one firm delegates and the other does not, we find two equilibria that mimic the full information situation, and two equilibria which display quality levels for the delegating firm lower than the full information ones. When the delegation decision is endogenous there are equilibrium configurations with zero, one and two delegating firms. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester
Volume (Year): 70 (2002)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: |
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1463-6786
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=1463-6786|
When requesting a correction, please mention this item's handle: RePEc:bla:manchs:v:70:y:2002:i:1:p:164-84. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.