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Strategic delegation and market competitiveness

Author

Listed:
  • Caterina Colombo

    () (Università di Ferrara)

  • Alessandra Chirco

    () (Università del Salento)

  • Marcella Scrimitore

    () (Università del Salento)

Abstract

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.

Suggested Citation

  • Caterina Colombo & Alessandra Chirco & Marcella Scrimitore, 2009. "Strategic delegation and market competitiveness," Economics Bulletin, AccessEcon, vol. 29(3), pages 1708-1716.
  • Handle: RePEc:ebl:ecbull:eb-09-00007
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I3-P18.pdf
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    References listed on IDEAS

    as
    1. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    2. Koji Ishibashi, 2001. "Strategic delegation under quality competition," Journal of Economics, Springer, vol. 73(1), pages 25-56, February.
    3. Barros, Fatima & Grilo, Isabel, 2002. "Delegation in a Vertically Differentiated Duopoly," Manchester School, University of Manchester, vol. 70(1), pages 164-184, January.
    4. 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 266-283, May.
    5. 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.
    6. 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.
    7. Basu, Kaushik, 1995. "Stackelberg equilibrium in oligopoly: An explanation based on managerial incentives," Economics Letters, Elsevier, vol. 49(4), pages 459-464, October.
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    Citations

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    Cited by:

    1. 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.
    2. 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.

    More about this item

    Keywords

    Strategic delegation; quantity competition; constant price-elasticity of demand;

    JEL classification:

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

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