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Strategic inattention, delegation and endogenous market structure

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  • Cellini, Roberto
  • Lambertini, Luca
  • Ottaviano, Gianmarco I.P.

Abstract

We model an industry in which a discrete number of firms choose the output of their differentiated products, deciding whether or not to consider the impact of their decisions on aggregate output. The firm’s choice of ignoring the impact of its production on aggregate output, which is typical of monopolistic competition, is derived as an equilibrium choice rather than assumed upfront. Such a choice is labelled as ‘strategic inattention’. We show that our model of “strategic inattention” is isomorphic to a model of ‘strategic delegation’ with managerial compensation based on relative profit performance. Thus, monopolistic competition and Cournot oligopoly are reconciled within a general model which can lead to either market form.

Suggested Citation

  • Cellini, Roberto & Lambertini, Luca & Ottaviano, Gianmarco I.P., 2020. "Strategic inattention, delegation and endogenous market structure," European Economic Review, Elsevier, vol. 121(C).
  • Handle: RePEc:eee:eecrev:v:121:y:2020:i:c:s0014292119301849
    DOI: 10.1016/j.euroecorev.2019.103324
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    More about this item

    Keywords

    Information; Strategic interaction; Monopolistic competition; Oligopoly; Delegation;
    All these keywords.

    JEL classification:

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

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