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Ownership, Control, and Collusion

Author

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  • Spagnolo, Giancarlo

    (Department of Economics)

Abstract

The paper addresses the effects of the separation of ownership and control on long-run competition in oligopolies. It finds that when managers have the preference for smooth time-paths of profits revealed by the evidence on "income smoothing," manager-led firms can sustain any collusive agreement at lower discount factors than owner-led ones. Most common managerial incentives - "low-powered" schemes with monetary bonuses and/or incumbency rents - make collusion supportable at any discount factor. When managers are in control, "price wars during booms" need not occur: the most collusive price tends to be pro-cyclical.

Suggested Citation

  • Spagnolo, Giancarlo, 1996. "Ownership, Control, and Collusion," SSE/EFI Working Paper Series in Economics and Finance 139, Stockholm School of Economics, revised Dec 1999.
    • Handle: RePEc:hhs:hastef:0139
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    Citations

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    Cited by:

    1. Neubauer, Silke, 1999. "Multimarket contact, collusion and the internal structure of firms," Discussion Papers, Research Unit: Market Dynamics FS IV 99-25, WZB Berlin Social Science Center.

    More about this item

    Keywords

    CEO compensation; delegation; collusion; oligopoly; managerial incentives; income smoothing; incumbency rents; ownership and control; 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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