IDEAS home Printed from https://ideas.repec.org/a/taf/ecinnt/v23y2014i1p1-24.html
   My bibliography  Save this article

Organizational structure, strategic delegation and innovation in oligopolistic industries

Author

Listed:
  • Evangelos Mitrokostas
  • Emmanuel Petrakis

Abstract

We endogenize firms' organizational structures in a homogenous goods duopoly where firms invest in cost-reducing R&D and compete in quantities, and examine their impact on R&D efforts and market performance. Each firm's owner can either delegate to a manager both market competition and R&D investment decisions (full delegation (FD) strategy) or delegate the market competition decision alone (partial delegation (PD) strategy). We show that when the initial marginal cost is relatively high, universal FD emerges in equilibrium. Otherwise, an asymmetric equilibrium with one owner choosing an FD strategy and the other a PD strategy arises. Finally, universal PD can arise in equilibrium only if the competition is in prices.

Suggested Citation

  • Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    • Handle: RePEc:taf:ecinnt:v:23:y:2014:i:1:p:1-24
    DOI: 10.1080/10438599.2012.746197
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10438599.2012.746197
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10438599.2012.746197?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. AMIR, Rabah & GARCIA, Filomena & KNAUFF, Malgorzata, 2006. "Endogenous heterogeneity in strategic models: symmetry-breaking via strategic substitutes and nonconcavities," LIDAM Discussion Papers CORE 2006008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. David Besanko & Ulrich Doraszelski, 2004. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 23-49, Spring.
    3. repec:bla:jfinan:v:43:y:1988:i:3:p:593-616 is not listed on IDEAS
    4. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    5. Rees, Ray, 1985. "The Theory of Principal and Agent: Part 2," Bulletin of Economic Research, Wiley Blackwell, vol. 37(2), pages 75-95, May.
    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. David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
    8. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
    9. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
    10. Levent Koçkesen & Efe A. Ok, 2004. "Strategic Delegation By Unobservable Incentive Contracts," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 397-424.
    11. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
    12. Rees, Ray, 1985. "The Theory of Principal and Agent: Part 1," Bulletin of Economic Research, Wiley Blackwell, vol. 37(1), pages 3-26, January.
    13. Esther Gal‐Or, 1997. "Multiprincipal Agency Relationships as Implied by Product Market Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 235-256, June.
    14. Richard A. Lambert & David F. Larcker & Keith Weigelt, 1991. "How sensitive is executive compensation to organizational size?," Strategic Management Journal, Wiley Blackwell, vol. 12(5), pages 395-402, July.
    15. Thijs Jansen & Arie van Lier & Arjen van Witteloostuijn, 2009. "On the impact of managerial bonus systems on firm profit and market competition: the cases of pure profit, sales, market share and relative profits compared," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 141-153.
    16. Amir, Rabah & Garcia, Filomena & Knauff, Malgorzata, 2010. "Symmetry-breaking in two-player games via strategic substitutes and diagonal nonconcavity: A synthesis," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1968-1986, September.
    17. Jianbo Zhang & Zhentang Zhang, 1997. "R&D in a strategic delegation game," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 391-398.
    18. Nicholas Bloom & John Van Reenen, 2010. "Why Do Management Practices Differ across Firms and Countries?," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 203-224, Winter.
    19. Robert E. Hoskisson & Michael A. Hitt & Charles W. L. Hill, 1991. "Managerial Risk Taking in Diversified Firms: An Evolutionary Perspective," Organization Science, INFORMS, vol. 2(3), pages 296-314, August.
    20. Massimo G. Colombo & Marco Delmastro, 2004. "Delegation of Authority In Business Organizations: An Empirical Test," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 53-80, March.
    21. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
    22. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-533, May.
    23. Michael Kopel & Christian Riegler, 2006. "R&D in a strategic delegation game revisited: a note," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 605-612.
    24. Del Monte, Alfredo & Papagni, Erasmo, 2003. "R&D and the growth of firms: empirical analysis of a panel of Italian firms," Research Policy, Elsevier, vol. 32(6), pages 1003-1014, June.
    25. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and the Sustainability of Competitive Advantage: Reply," Management Science, INFORMS, vol. 35(12), pages 1514-1514, December.
    26. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
    27. Leonard Wang & Ya-Chin Wang, 2010. "Input Pricing and Market Share Delegation in a Vertically Related Market: Is the Timing Order Relevant?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(2), pages 207-221.
    28. Ritz, Robert A., 2008. "Strategic incentives for market share," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 586-597, March.
    29. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2010. "Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 531-543, December.
    30. Caillaud, Bernard & Rey, Patrick, 1995. "Strategic aspects of vertical delegation," European Economic Review, Elsevier, vol. 39(3-4), pages 421-431, April.
    31. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    32. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
    33. Roller, Lars-Hendrik & Sinclair-Desgagne, Bernard, 1996. "On the heterogeneity of firms," European Economic Review, Elsevier, vol. 40(3-5), pages 531-539, April.
    34. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    35. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    36. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    37. Lin, Chen & Lin, Ping & Song, Frank M. & Li, Chuntao, 2011. "Managerial incentives, CEO characteristics and corporate innovation in China's private sector," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 176-190, June.
    38. Barcena-Ruiz, Juan Carlos & Casado-Izaga, F. Javier, 2005. "Should shareholders delegate location decisions?," Research in Economics, Elsevier, vol. 59(3), pages 209-222, September.
    39. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    40. Miller, Nolan H. & Pazgal, Amit, 2005. "Strategic trade and delegated competition," Journal of International Economics, Elsevier, vol. 66(1), pages 215-231, May.
    41. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    42. Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    43. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
    44. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stadler Manfred & Unsorg Maximiliane, 2022. "Manager Delegation, Owner Coordination and Firms’ Investment in Automation," Review of Economics, De Gruyter, vol. 73(2), pages 159-182, August.
    2. Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    3. Alessandra Chirco & Caterina Colombo & Marcella Scrimitore, 2013. "Organizational Structure and the Choice of Price vs. Quantity in a Mixed Duopoly," Working Paper series 27_13, Rimini Centre for Economic Analysis.
    4. Shubhro Sarkar & Suchismita Tarafdar, 2018. "Investment choice with managerial incentive schemes," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-008, Indira Gandhi Institute of Development Research, Mumbai, India.
    5. Zhao, Kai & Wu, Wanshu, 2015. "Ambiguity Between Pirate Incentive And Collective Desirability Within Semi-Delegation Pattern," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 56(2), pages 259-279, December.
    6. Alessandra Chirco & Caterina Colombo & Marcella Scrimitore, 2014. "Organizational Structure and the Choice of Price versus Quantity in a Mixed Duopoly," The Japanese Economic Review, Japanese Economic Association, vol. 65(4), pages 521-542, December.
    7. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    8. Marcella Scrimitore, 2019. "Endogenizing managerial delegation: A new result under Nash bargaining and network effects," EERI Research Paper Series EERI RP 2019/15, Economics and Econometrics Research Institute (EERI), Brussels.
    9. Jean‐Baptiste Tondji, 2022. "Overconfidence and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(3), pages 751-767, April.
    10. Chung-Hui Chou, 2023. "An analysis of managerial delegation in a market with vertically-integrated producer owning an essential input monopolistically," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 247-265, February.
    11. Chrysovalantou Milliou & Apostolis Pavlou, 2013. "Upstream Mergers, Downstream Competition, and R&D Investments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 787-809, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2010. "Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 531-543, December.
    2. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2007. "Endogenous Strategic Managerial Incentive Contracts," Working Papers 0706, University of Crete, Department of Economics.
    3. Barreda-Tarrazona, Iván & Georgantzís, Nikolaos & Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2016. "Endogenous managerial compensation contracts in experimental quantity-setting duopolies," Economic Modelling, Elsevier, vol. 54(C), pages 205-217.
    4. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    5. Fanti, Luciano & Gori, Luca & Mammana, Cristiana & Michetti, Elisabetta, 2014. "Local and global dynamics in a duopoly with price competition and market share delegation," Chaos, Solitons & Fractals, Elsevier, vol. 69(C), pages 253-270.
    6. Nicola Meccheri & Luciano Fanti, 2012. "Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation," Working Paper series 44_12, Rimini Centre for Economic Analysis.
    7. Ya-Chin Wang, 2013. "Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly," South African Journal of Economics, Economic Society of South Africa, vol. 81(4), pages 605-624, December.
    8. Ya‐chin Wang & Leonard F.s. Wang, 2009. "Equivalence Of Competition Mode In A Vertically Differentiated Duopoly With Delegation," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 577-590, December.
    9. Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Do Firms' Owners Delegate both Short-Run and Long-Run Decisions to Their Managers in Equilibrium?," Working Papers 0815, University of Crete, Department of Economics.
    10. Yasuhiko Nakamura, 2015. "Endogenous Choice of Strategic Variables in an Asymmetric Duopoly with Respect to the Demand Functions that Firms Face," Manchester School, University of Manchester, vol. 83(5), pages 546-567, September.
    11. Fanti, Luciano & Gori, Luca & Sodini, Mauro, 2012. "Nonlinear dynamics in a Cournot duopoly with relative profit delegation," Chaos, Solitons & Fractals, Elsevier, vol. 45(12), pages 1469-1478.
    12. Luciano Fanti & Nicola Meccheri, 2013. "Managerial Delegation under Alternative Unionization Structures," LABOUR, CEIS, vol. 27(1), pages 38-57, March.
    13. Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Strategic Delegation in Experimental Duopolies with Endogenous Incentive Contracts," Working Papers 0809, University of Crete, Department of Economics.
    14. Fanti, Luciano & Gori, Luca, 2011. "Stability analysis in a Cournot duopoly with managerial sales delegation and bounded rationality," MPRA Paper 33828, University Library of Munich, Germany.
    15. Leonard F. S. Wang, 2020. "Relative Performance Versus Market Share Delegation in a Vertically Related Market," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(1), pages 16-27, June.
    16. Yue Shen & Youjun Xu & Jingming Hao, 2011. "Strategic incentive in mixed oligopoly," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(2), pages 311-326, June.
    17. Luca Gori & Nicolò Pecora & Mauro Sodini, 2017. "Market share delegation in a nonlinear duopoly with quantity competition: the role of dynamic entry barriers," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 905-931, November.
    18. Jumpei Hamamura, 2021. "What level do disadvantaged firms weight rivals' profits in relative performance evaluations under quantity competition?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 493-501, March.
    19. Zhu, Yan-lan & Zhou, Wei & Chu, Tong, 2022. "Analysis of complex dynamical behavior in a mixed duopoly model with heterogeneous goods," Chaos, Solitons & Fractals, Elsevier, vol. 159(C).
    20. Werner Neus & Manfred Stadler, 2018. "Common holdings and strategic manager compensation: The case of an asymmetric triopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(7), pages 814-820, October.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ecinnt:v:23:y:2014:i:1:p:1-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/GEIN20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.