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Input Pricing and Market Share Delegation in a Vertically Related Market: Is the Timing Order Relevant?

  • Leonard Wang
  • Ya-Chin Wang
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    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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    Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

    Volume (Year): 17 (2010)
    Issue (Month): 2 ()
    Pages: 207-221

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    Handle: RePEc:taf:ijecbs:v:17:y:2010:i:2:p:207-221
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