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Organizational structure, strategic delegation and innovation in oligopolistic industries

  • Evangelos Mitrokostas

    ()

    (University of Portsmouth)

  • Emmanuel Petrakis

    ()

    (University of Crete
    LEE and Department of Economics, Universitat Jaume I (Castellón, Spain))

We endogenize firms’ organizational structures in a homogenous goods duopoly where firms invest in cost reducing R&D and compete in quantities, and examine their impact on R&D efforts, market performance and social welfare. Each firm’s owner can either delegate to a manager both market competition and R&D investment decisions (Full Delegation strategy) or delegate the market competition decision alone (Partial Delegation strategy). We show that when the initial marginal cost is relatively high, Universal Full Delegation emerges in equilibrium. Otherwise, an asymmetric equilibrium with one owner choosing a Full Delegation strategy and the other a Partial Delegation strategy arises. Welfare is always higher in the asymmetric equilibrium configuration, thus, market and societal incentives are not always aligned. Finally, Universal Partial Delegation can arise in equilibrium only if goods are poor substitutes or if competition is in prices.

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Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2011/09.

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Length: 43 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:jau:wpaper:2011/09
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