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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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    1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
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    4. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
    5. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier.
    6. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
    7. Tabuchi, Takatoshi & Thisse, Jacques-Francois, 1995. "Asymmetric equilibria in spatial competition," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 213-227.
    8. Barcena-Ruiz, Juan Carlos & Espinosa, Maria Paz, 2000. "Entry and Managerial Incentives: A Note," Bulletin of Economic Research, Wiley Blackwell, vol. 52(2), pages 175-180, April.
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    12. Juan Carlos Barcena-Ruiz & Maria Paz Espinosa, 1996. "Long-Term or Short-Term Managerial Incentive Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 343-359, September.
    13. Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
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    More about this item

    Keywords

    Managerial incentives; product di erentiation; strategic delegation.;

    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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