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Competition within firms

  • Bruttel, L.
  • Schudy, Simeon

We investigate the role of incentives set by a parent firm for competition among its subsidiaries. In a Cournot experiment, four subsidiaries of the same parent operate in the same market. Parents earn a specific share of the joint profit, and can choose how to distribute the remaining surplus (or loss). Results show that parents allocating profits equally among their subsidiaries reach outcomes close to collusion. However, almost half of the parent firms employ a proportional sharing rule instead. These groups end up with profits around the Cournot level.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19990.

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Date of creation: 2012
Date of revision:
Publication status: Published in Journal of Competition Law and Economics 1 8(2012): pp. 167-185
Handle: RePEc:lmu:muenar:19990
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  1. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 2000. "Strategic delegation in experimental markets," SFB 373 Discussion Papers 2000,39, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Pedro Rey-Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, 06.
  3. Gary Bornstein & Uri Gneezy, 2002. "Price Competition Between Teams," Experimental Economics, Springer, vol. 5(1), pages 29-38, June.
  4. Ola Andersson & Erik Wengström, 2007. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 321-339, 06.
  5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  6. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  7. Burkhard C. Schipper & Philippe Raab, 2006. "Cournot Competition between Teams: An Experimental Study," Working Papers 626, University of California, Davis, Department of Economics.
  8. Bornstein, Gary & Kugler, Tamar & Budescu, David V. & Selten, Reinhard, 2008. "Repeated price competition between individuals and between teams," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 808-821, June.
  9. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
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