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Competition And The Strategic Choice Of Managerial Incentives: The Relative Performance Case

Author

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  • Alessandra Chirco
  • Marcella Scrimitore
  • Caterina Colombo

Abstract

In this paper we study the role of market competitiveness in a strategic delegation game in which owners delegate output decisions to managers interested in the firm's relative performance. In particular we study how the optimal delegation scheme - i.e. the distortion from pure profit maximization - is affected by market concentration and the elasticity of market demand. We show that these two indexes of market competitiveness do not alter managerial incentives in the same way: while the optimal degree of delegation decreases as the market becomes less concentrated, it increases as demand becomes more elastic.
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Suggested Citation

  • Alessandra Chirco & Marcella Scrimitore & Caterina Colombo, 2011. "Competition And The Strategic Choice Of Managerial Incentives: The Relative Performance Case," Metroeconomica, Wiley Blackwell, vol. 62(4), pages 533-547, November.
    • Handle: RePEc:bla:metroe:v:62:y:2011:i:4:p:533-547
    DOI: j.1467-999X.2011.04124.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-999X.2011.04124.x
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    Cited by:

    1. Shih‐Shen Chen & Chu‐Chuan Hsu & Po‐Sheng Ko, 2025. "Asymmetric Choice of Relative‐Performance Delegation Under Duopoly Competition With Vertical Product‐Quality Difference," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(5), pages 2869-2875, July.
    2. Jumpei Hamamura, 2021. "What level do disadvantaged firms weight rivals' profits in relative performance evaluations under quantity competition?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 493-501, March.
    3. Li, Xiaoliang & Yang, Jing & Zhang, Ally Quan, 2025. "Influence of price elasticity of demand on monopoly games under different returns to scale," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 233(C), pages 75-98.
    4. Jumpei Hamamura & Vinay Ramani, 2024. "The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(3), pages 416-438, July.
    5. Werner Neus & Manfred Stadler, 2018. "Common holdings and strategic manager compensation: The case of an asymmetric triopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(7), pages 814-820, October.
    6. Stadler Manfred & Unsorg Maximiliane, 2022. "Manager Delegation, Owner Coordination and Firms’ Investment in Automation," Review of Economics, De Gruyter, vol. 73(2), pages 159-182, August.
    7. Ya-Chin Wang, 2013. "Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly," South African Journal of Economics, Economic Society of South Africa, vol. 81(4), pages 605-624, December.
    8. Jumpei Hamamura, 2022. "Weight assigned to a rival's profit by an advantaged firm in relative performance evaluation with Cournot–Bertrand competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2838-2844, October.
    9. Stadler Manfred & Unsorg Maximiliane, 2025. "Strategic Location and Manager Delegation with Concentrated Consumer Demand," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 245(3), pages 251-267.
    10. Jumpei Hamamura & Vinay Ramani, 2023. "Social performance versus relative performance evaluation, asymmetric costs, and quantity competition under managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1706-1719, April.
    11. Stadler, Manfred & Neus, Werner, 2018. "Cross Holdings and Strategic Manager Compensation. The Case of an Asymmetric Triopoly," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181534, Verein für Socialpolitik / German Economic Association.
    12. Fanti, Luciano & Gori, Luca & Sodini, Mauro, 2015. "Nonlinear dynamics in a Cournot duopoly with isoelastic demand," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 108(C), pages 129-143.
    13. Leonard F. S. Wang, 2020. "Relative Performance Versus Market Share Delegation in a Vertically Related Market," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(1), pages 16-27, June.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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