Input Pricing and Market Share Delegation in a Vertically Related Market: Is the Timing Order Relevant?
This paper adds to the literature on the strategic use of managers' contracts in competition by examining whether market-share delegation, in which managers receive rewards based on a combination of profits and market share, and the order of moves affect input pricing in a vertically related market. It shows that: (i) input pricing is not affected by delegation form and the order of moves between upstream and downstream firms under quantity competition; (ii) downstream firms obtain the same profit as in the simple Nash equilibrium regardless of delegation forms in a delegation-input price-quantity competition game; and (iii) the upstream monopolist will set input price beforehand regardless of the delegation form. Since the outcomes in our model create higher quantity and lower price in a Cournot product market, it lessens the double-marginalization problem in such a vertically separated industry.
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Volume (Year): 17 (2010)
Issue (Month): 2 ()
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