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Strategic Delegation with Differentiated Products

Author

Listed:
  • Dinah A. Cohen-Vernik

    (University of Houston-Downtown)

  • Li Yang

    (Chinese University of Hong Kong-Shenzhen)

  • Amit Pazgal

    (Rice University)

Abstract

This paper contributes to the analytical research on the profit implications of delegating production decisions to managers in the context of cost-asymmetric competing firms. We generalize previous studies by relaxing the assumption of product homogeneity. We demonstrate that the interplay between strategic delegation and the degree of product differentiation may lead to the reversal of the classic profit-ranking of Cournot equilibria. We discuss the drivers beyond the pure marginal cost asymmetry, which lead to this reversal: specifically, how the abilities to delegate production decisions and to choose the extent of such delegation further expand the parameter space where the high-cost firm is earning higher equilibrium profits compared to its more efficient rival.

Suggested Citation

  • Dinah A. Cohen-Vernik & Li Yang & Amit Pazgal, 2022. "Strategic Delegation with Differentiated Products," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 9(3), pages 66-73, December.
    • Handle: RePEc:spr:custns:v:9:y:2022:i:3:d:10.1007_s40547-022-00130-7
    DOI: 10.1007/s40547-022-00130-7
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    References listed on IDEAS

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