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Strategic delegation and market competitiveness

  • Caterina Colombo

    ()

    (Università di Ferrara)

  • Alessandra Chirco

    ()

    (Università del Salento)

  • Marcella Scrimitore

    ()

    (Università del Salento)

Within a strategic delegation model, this paper examines in a quantity setting oligopoly framework the determinants of the degree of strategic delegation - the latter being defined as the extent of the departure from pure profit maximization. The sub-game perfect equilibrium degree of strategic delegation is derived as a function of the two key parameters which determine market competitiveness in a homogeneous product set-up, i.e., the price-elasticity of market demand and the number of firms. With respect to both these parameters we find that their relationship with the degree of delegation is not necessarily monotone. Indeed, for an increase in elasticity or a reduction in market concentration to reduce strategic delegation, these determinants of the Lerner index of monopoly power must satisfy restrictions which guarantee that the initial market environment is sufficiently competitive.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 1708-1716

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Handle: RePEc:ebl:ecbull:eb-09-00007
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  1. Barros, Fatima & Grilo, Isabel, 2002. "Delegation in a Vertically Differentiated Duopoly," Manchester School, University of Manchester, vol. 70(1), pages 164-84, January.
  2. Koji Ishibashi, 2001. "Strategic delegation under quality competition," Journal of Economics, Springer, vol. 73(1), pages 25-56, February.
  3. White, Mark D., 2001. "Managerial incentives and the decision to hire managers in markets with public and private firms," European Journal of Political Economy, Elsevier, vol. 17(4), pages 877-896, November.
  4. Basu, Kaushik, 1995. "Stackelberg equilibrium in oligopoly: An explanation based on managerial incentives," Economics Letters, Elsevier, vol. 49(4), pages 459-464, October.
  5. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  6. Gonzalez-Maestre, Miguel & Lopez-Cunat, Javier, 2001. "Delegation and mergers in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1263-1279, September.
  7. Naish, Howard F, 1998. "Imperfect Competition and the Gains from Trade in a Macro Duopoly Model," Review of International Economics, Wiley Blackwell, vol. 6(2), pages 266-83, May.
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