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Spatial competition and the duration of managerial incentive contracts

Author

Listed:
  • Juan Carlos Bárcena-Ruiz

    (Universidad del País Vasco)

  • F. Javier Casado-Izaga

    (Universidad del País Vasco)

Abstract

We consider a duopoly model of spatial competition in which the owners of the firms can strategically use two variables: the duration of managerial incentive contracts and the location of the firms. In equilibrium, one owner chooses a long-term incentive contract for his manager (becoming a leader in incentives), while the other (the follower) chooses short-term contracts. Both firms are located outside the city boundaries, but the leader locates its firm closer to the market than the follower and encourages its manager to be less aggressive than the follower’s manager. As a result, in contrast to the conventional wisdom, under Bertrand competition the leader obtains higher profits than the follower. (Copyright: Fundación SEPI)

Suggested Citation

  • Juan Carlos Bárcena-Ruiz & F. Javier Casado-Izaga, 2005. "Spatial competition and the duration of managerial incentive contracts," Investigaciones Economicas, Fundación SEPI, vol. 29(2), pages 331-349, May.
    • Handle: RePEc:iec:inveco:v:29:y:2005:i:2:p:331-349
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    References listed on IDEAS

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    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
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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