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Cost-Saving production technologies and strategic delegation

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  • Bárcena Ruiz, Juan Carlos
  • Olaizola Ortega, María Norma

Abstract

This work analyzes a managerial delegation model in which firms that produce a differentiated good can choose between two production technologies: a low marginal cost technology and a high marginal cost technology. For the former to be adopted more investment is needed than for the latter. By giving managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we find that Bertrand competition provides a stronger incentive to adopt the cost-saving technology than the strict profit maximization case. However, the results may be reversed under Cournot competition. We show that if the degree of product substitutability is sufficiently low (high), the incentive to adopt the cost-saving technology is larger under strict profit maximization (strategic delegation).

Suggested Citation

  • Bárcena Ruiz, Juan Carlos & Olaizola Ortega, María Norma, 2004. "Cost-Saving production technologies and strategic delegation," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    • Handle: RePEc:ehu:ikerla:6495
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    References listed on IDEAS

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    6. Bárcena Ruiz, Juan Carlos & Olaizola Ortega, María Norma, 2004. "Choice of Flexible Production Technologies Under Strategic Delegation," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    7. Bárcena Ruiz, Juan Carlos & Olaizola Ortega, María Norma, 2004. "Choice of Flexible Production Technologies Under Strategic Delegation," IKERLANAK 2004-13, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
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    Cited by:

    1. Michael Kopel & Anna Ressi & Luca Lambertini, 2017. "Capturing Direct and Cross Price Effects in a Differentiated Products Duopoly Model," Manchester School, University of Manchester, vol. 85(3), pages 282-294, June.
    2. Bárcena Ruiz, Juan Carlos & Olaizola Ortega, María Norma, 2004. "Choice of Flexible Production Technologies Under Strategic Delegation," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.

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