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Intrafirm Conflicts and Interfirm Price Competition

Author

Listed:
  • Werner Güth

    () (Max Planck Institute of Economics, Strategic Interaction Group)

  • Kerstin Pull

    () (University of Tübingen, Department of Economics and Business Administration)

  • Manfred Stadler

    () (University of Tübingen, Department of Economics and Business Administration)

Abstract

We study interfirm price competition in the presence of horizontal and vertical intrafirm conflicts in each firm. Intrafirm conflicts are captured by a principal-agent framework with firms employing more than one agent and implementing a tournament incentive scheme. The principals offer premium incentives in the sense of revenue shares to which agents react by proposing a sales price. Introducing such intrafirm conflicts results in higher prices and lower effort levels. Increasing the number of agents lowers the optimal surplus share of the agents as well as the individual effort and the sales prices. Firm profits first increase and then decrease when employing more and more agents suggesting that principals should employ an intermediate number of agents.

Suggested Citation

  • Werner Güth & Kerstin Pull & Manfred Stadler, 2011. "Intrafirm Conflicts and Interfirm Price Competition," Jena Economic Research Papers 2011-042, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2011-042
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    File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_2011_042.pdf
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    References listed on IDEAS

    as
    1. Matthias Kräkel, 2005. "Strategic delegation in oligopolistic tournaments," Review of Economic Design, Springer;Society for Economic Design, vol. 9(4), pages 377-396, December.
    2. Geoffrey Brennan & Werner Güth & Hartmut Kliemt, 2004. "Approximate Truth in Economic Modelling," Papers on Strategic Interaction 2004-38, Max Planck Institute of Economics, Strategic Interaction Group.
    3. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    4. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    5. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
    6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    Citations

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    Cited by:

    1. Hildenbrand, Andreas & Duran, Mihael, 2013. "The role of managerial work in market performance: A monopoly model with team production," University of Tuebingen Working Papers in Economics and Finance 66, University of Tuebingen, Faculty of Economics and Social Sciences.
    2. Max Albert & Andreas Hildenbrand, 2016. "Industrial Organization and Experimental Economics: How to Learn from Laboratory Experiments," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 135-156, August.
    3. Pull, Kerstin & Stadler, Manfred, 2015. "Contests vs. piece rates in product market competition," University of Tuebingen Working Papers in Economics and Finance 85, University of Tuebingen, Faculty of Economics and Social Sciences.

    More about this item

    Keywords

    Price competition; Agency theory;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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