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Shareholder-Value Maximization and Tacit Collusion

  • Spagnolo, Giancarlo

    (Dept. of Economics, Stockholm School of Economics)

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.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 235.

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Length: 35 pages
Date of creation: 07 May 1998
Date of revision: 11 Nov 1998
Publication status: Forthcoming in RAND Journal of Economics.
Handle: RePEc:hhs:hastef:0235
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