Entry Deterrence and Strategic Delegation
We consider a game in which firms' owners assign to their managers a delegation scheme weighting profits and market shares. Managers then compete in quantities. We show first that this delegation scheme typically leads to quantities being strategic substitutes or complements depending on firms' relative size. Second, we consider a game of entry and show that the incumbent may achieve entry deterrence using this delegation scheme. When entry is deterred, the incumbent acts as a pure monopolist.
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