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Strategic Delegation of Indebted Firms in a Duopoly with Uncertain Demand

Author

Listed:
  • Tetsuya Shinkai

    (School of Economics, Kwansei Gakuin University)

  • Takao Ohkawa

    (Faculty of Economics Ritsumeikan University)

  • Makoto Okamura

    (Faculty of Economics, Hiroshima University)

  • Kozo Harimaya

    (Faculty of Business Administration Ritsumeikan University)

Abstract

We examine an effect of strategic delegation on the competition behavior of indebted firms and welfare in a Cournot duopoly with demand uncertainty. We establish that the owners of each firm delegate their tasks and decisions to a manager when the demand is sufficiently large but one firm chooses no delegation and the other chooses delegation when the demand is small. This result is consistent with the duopoly competition example between the Mitsui Gomei Kaisya and Suzuki & Co. from the late Meiji era to Taisho era in Japan.

Suggested Citation

  • Tetsuya Shinkai & Takao Ohkawa & Makoto Okamura & Kozo Harimaya, 2015. "Strategic Delegation of Indebted Firms in a Duopoly with Uncertain Demand," Discussion Paper Series 135, School of Economics, Kwansei Gakuin University, revised Sep 2015.
    • Handle: RePEc:kgu:wpaper:135
    as

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    References listed on IDEAS

    as
    1. Kozo Harimaya & Takao Ohkawa & Makoto Okamura & Tetsuya Shinkai, 2012. "Sales-Maximization vs. Profit-Maximization: Managerial Behavior at Japanese Regional Banks 1980-2009," Discussion Paper Series 94, School of Economics, Kwansei Gakuin University, revised Sep 2012.
    2. Cleary, Sean & Povel, Paul & Raith, Michael, 2007. "The U-Shaped Investment Curve: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(1), pages 1-39, March.
    3. Franck, Bernard & Le Pape, Nicolas, 2008. "The commitment value of the debt: A reappraisal," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 607-615, March.
    4. Federico Etro, 2010. "Endogenous market structures and the optimal financial structure," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1333-1352, November.
    5. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    6. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    7. Povel, Paul & Raith, Michael, 2004. "Financial constraints and product market competition: ex ante vs. ex post incentives," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 917-949, September.
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    More about this item

    Keywords

    indebted firms; delegation; managerial incentives; and Cournot duopoly;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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