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Strategic Delegation under Cost Asymmetry

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  • F. Delbono
  • L. Lambertini
  • L. Marattin

Abstract

We revisit the two-stage duopoly game with strategic delegation and asymmetric technologies of Sen and Stamatopoulos (2015). We show that their conclusions are misled by the restrictive assumption that the extent of delegation to managers is restricted to a binary set. Allowing for a continuous set of delegation incentives, we prove that the delegation stage is a prisoners' dilemma, the unique subgame perfect equilibrium entailing both fi?rms hiring managers. At equilibrium, the more efficient ?firm makes higher profi?ts.

Suggested Citation

  • F. Delbono & L. Lambertini & L. Marattin, 2015. "Strategic Delegation under Cost Asymmetry," Working Papers wp1016, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp1016
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    References listed on IDEAS

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    1. Sen, Debapriya & Stamatopoulos, Giorgos, 2010. "When an inefficient firm makes higher profit than its efficient rival," MPRA Paper 23324, University Library of Munich, Germany.
    2. Lambertini, Luca & Trombetta, Marco, 2002. "Delegation and firms' ability to collude," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 359-373, April.
    3. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    4. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
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    Cited by:

    1. 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.
    2. Xingtang Wang & Leonard F.S. Wang, 2021. "External bargaining versus internal manipulation: A theory of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 134-142, January.
    3. Lisa Planer-Friedrich & Marco Sahm, 2021. "Strategic CSR in Asymmetric Cournot Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 21(1), pages 33-42, March.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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