IDEAS home Printed from https://ideas.repec.org/a/bla/metroe/v59y2008i1p27-41.html
   My bibliography  Save this article

Observable Managerial Incentives And Spatial Competition

Author

Listed:
  • Domenico Scalera
  • Alberto Zazzaro

Abstract

In this paper we investigate the relationship between product market competition and managerial incentives within a circular city model with observable agency contracts. With respect to the case of unobservability studied by Raith (2003), we find that optimal managerial contracts provide lower incentives, and that equilibrium expected prices and profits are higher. Changes in competition fundamentals have ambiguous effects, but observable contracts alleviate their impact on incentives. Finally, observability involves three major implications: managerial incentives are higher under price regulation than under competition; prices may increase with the number of firms; consumer welfare may diminish when competition increases.

Suggested Citation

  • Domenico Scalera & Alberto Zazzaro, 2008. "Observable Managerial Incentives And Spatial Competition," Metroeconomica, Wiley Blackwell, vol. 59(1), pages 27-41, February.
    • Handle: RePEc:bla:metroe:v:59:y:2008:i:1:p:27-41
    DOI: 10.1111/j.1467-999X.2007.00287.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-999X.2007.00287.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-999X.2007.00287.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
    2. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    3. Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, vol. 73(2), pages 278-283, May.
    4. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 191-213.
    5. Rachel Griffith, 2001. "Product market competition, efficiency and agency costs: an empirical analysis," IFS Working Papers W01/12, Institute for Fiscal Studies.
    6. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    7. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    8. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, September.
    9. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    10. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    11. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    12. Graziano, Clara & Parigi, Bruno M., 1998. "Do managers work harder in competitive industries?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(3), pages 489-498, March.
    13. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giorgos Stamatopoulos, 2016. "Cournot and Stackelberg equilibrium under strategic delegation: an equivalence result," Theory and Decision, Springer, vol. 81(4), pages 553-570, November.
    2. Lei Bao & Yulin Zhang & Vitor Miguel Ribeiro, 2018. "Observability of Incentive Contract and Platform Competition," Australian Economic Papers, Wiley Blackwell, vol. 57(2), pages 154-180, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Federico Etro, 2010. "Endogenous Market Structures and Contract Theory," Working Papers 181, University of Milano-Bicocca, Department of Economics, revised Mar 2010.
    2. Andergassen, Rainer, 2016. "Managerial compensation, product market competition and fraud," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 1-15.
    3. Marcello D'Amato & Riccardo Martina & Salvatore Piccolo, 2005. "Competitive Pressure, Incentives and Managerial Rewards," CSEF Working Papers 148, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2006.
    4. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    5. Dam, Kaniṣka & Robinson-Cortés, Alejandro, 2020. "Executive compensation and competitive pressure in the product market: How does firm entry shape managerial incentives?," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 60-77.
    6. Etro, Federico, 2011. "Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying," European Economic Review, Elsevier, vol. 55(4), pages 463-479, May.
    7. Alejandro Robinson Cortés, 2013. "Eficiencia Interna y Competencia de Mercado en Oligopolio," Undergraduate theses (Spanish) tesl001, CIDE, División de Economía.
    8. Chalioti, Evangelia & Serfes, Konstantinos, 2017. "Strategic incentives for innovations and market competition," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 427-449.
    9. Evangelia Chalioti, 2015. "Incentive contracts under product market competition and R&D spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 305-328, February.
    10. Fernandes, Ana P. & Ferreira, Priscila & Alan Winters, L., 2014. "Firm entry deregulation, competition and returns to education and skill," European Economic Review, Elsevier, vol. 70(C), pages 210-230.
    11. Ramiro de Elejalde & Carlos Ponce & Flavia Roldán, 2018. "Innovation and competition: evidence from Uruguayan firms," Documentos de Investigación 116, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    12. Stefan Beiner & Markus M. Schmid & Gabrielle Wanzenried, 2011. "Product Market Competition, Managerial Incentives and Firm Valuation," European Financial Management, European Financial Management Association, vol. 17(2), pages 331-366, March.
    13. Cuñat, Vicente & Guadalupe, Maria, 2009. "Executive compensation and competition in the banking and financial sectors," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 495-504, March.
    14. Ennasri, Ahmed & Willinger, Marc, 2014. "Incentives and managerial effort under competitive pressure: An experiment," Research in Economics, Elsevier, vol. 68(4), pages 324-337.
    15. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, September.
    16. Clara Graziano & Laura Rondi, 2021. "Product Market Competition, Executive Compensation, and CEO Family Ties," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 357-397, May.
    17. Ahmed Ennasri, 2010. "Incitations Managériales et Concurrence : Synthèse de la Littérature," Studies and Syntheses 10-03, LAMETA, Universtiy of Montpellier, revised Oct 2010.
    18. Tinaikar, Surjit & Xu, Bo, 2023. "Does competition exacerbate investment inefficiencies? Evidence from Japanese firms," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 35-53.
    19. Jen Baggs & Jean‐Etienne De Bettignies, 2007. "Product Market Competition And Agency Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 289-323, June.
    20. Jun Chen & Zhiqi Chen, 2011. "The quiet life of a monopolist: The efficiency losses of monopoly reconsidered," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(3), pages 389-412, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:metroe:v:59:y:2008:i:1:p:27-41. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0026-1386 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.