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Bargaining over Managerial Contracts in Delegation Games: The Quadratic Cost Case

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  • Yasuhiko Nakamura

    () (Graduate School of Economics, Waseda University)

Abstract

We again examine how the managers' bargaining power affects social welfare and the firms'' profits in both quantity and price competition, in particular, in the case where each firm''s production technology is represented by a quadratic cost function. We show that under both the competition types, if the relative bargaining power of managers is sufficiently low, increase in the power results in the decrease of each firm''s profit and the increase of social welfare on the other hand, if the managers'' relative bargaining power is sufficiently high, its increase leads to the deterioration of social welfare due to the excessively high total cost in the market. This result is somewhat in contrast to the existing ones obtained in the constant marginal cost case, and hence, our findings show that they are not robust against the change in the type of each firm''s cost function.

Suggested Citation

  • Yasuhiko Nakamura, 2008. "Bargaining over Managerial Contracts in Delegation Games: The Quadratic Cost Case," Economics Bulletin, AccessEcon, vol. 12(16), pages 1-7.
  • Handle: RePEc:ebl:ecbull:eb-08l20007
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    References listed on IDEAS

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    1. Yasuhiko Nakamura, 2008. "Bargaining over Managerial Contracts in Delegation Games: The Differentiated Goods Case," Economics Bulletin, AccessEcon, vol. 12(6), pages 1-8.
    2. Ritz, Robert A., 2008. "Strategic incentives for market share," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 586-597, March.
    3. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
    4. repec:ebl:ecbull:v:12:y:2008:i:16:p:1-7 is not listed on IDEAS
    5. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
    6. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    7. Yasuhiko Nakamura & Kohei Kamaga, 2008. "Bargaining over Managerial Contracts in Delegation Games: The Sequential Move Case," Economics Bulletin, AccessEcon, vol. 12(7), pages 1-8.
    8. repec:ebl:ecbull:v:12:y:2008:i:7:p:1-8 is not listed on IDEAS
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    Cited by:

    1. Fanti, Luciano & Buccella, Domenico, 2018. "Firms Controlled by Owners and Managerial Firms: The 'Strategic' Trade Policy Game Revisited," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 71(1), pages 51-72.
    2. Stamatopoulos, Giorgos, 2018. "Bargaining over managerial contracts: a note," MPRA Paper 86143, University Library of Munich, Germany.
    3. Yasuhiko Nakamura, 2017. "Price Versus Quantity in a Duopoly with a Unilateral Effect and with Bargaining over Managerial Contracts," Journal of Industry, Competition and Trade, Springer, vol. 17(1), pages 83-119, March.

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    More about this item

    Keywords

    Bargaining over managerial delegation sales delegation quadratic cost function;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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