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Stock-Related Compensation and Product-Market Competition

Author

Listed:
  • Giancarlo Spagnolo

    (Churchill College, Cambridge and Stockholm School of Economics)

Abstract

This paper shows that as long as the stock market has perfect foresight, some dividends are distributed, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation making collusion supportable at any discount factor. The results hold with managerial contracts of any length.

Suggested Citation

  • Giancarlo Spagnolo, 1999. "Stock-Related Compensation and Product-Market Competition," Working Papers 1999.35, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:1999.35
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    Keywords

    CEO Compensation; Delegation; Collusion; Oligopoly; Managerial incentives; Ownership and control; Corporate governance;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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