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Strategic choice of forward contracts and managerial incentive contracts in a context of Cournot competition

  • Sandra Miranda
  • Ximena Bernal
  • Flavio Jácome
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    This paper analyzes the effects of forward contracts and managerial incentive contracts, which are tools that firms can use to compete strategically with their rivals in an oligopolistic market. The results show that when the two firms produce a homogeneous good, can hire managers and trade forward contracts, in equilibrium they hire managers and none of them negotiate forward contracts. In the case of differentiated goods, when the goods are substitutes, in equilibrium the firms hire managers and do not trade forward contracts; when the goods are complementary, one firm hires a manager and does not negotiate forward contracts whereas the other one does not hire a manager and negotiates forward contracts. The highest social welfare is achieved when the firms use managerial incentive contracts and forward contracts, and the lowest is achieved when the firms do not use these strategic tools. However, the equilibrium social welfare level is suboptimal.

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    File URL: http://aprendeenlinea.udea.edu.co/revistas/index.php/lecturasdeeconomia/article/view/12816/11547
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    Article provided by Universidad de Antioquia, Departamento de Economía in its journal LECTURAS DE ECONOMÍA.

    Volume (Year): (2012)
    Issue (Month): 76 ()
    Pages: 215-257

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    Handle: RePEc:lde:journl:y:2012:i:76:p:215-257
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    1. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    2. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
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