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Strategic incentives for market share

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  • Robert Ritz

Abstract

Market share objectives are prominent in many industries, especially where managers pay much attention to league table rankings. This paper explores the strategic rationale for giving managers incentives based on market share in an oligopoly competing in strategic substitutes. Moreover, the paper discusses evidence on executive compensation practice in the automotive and investment banking industries. As predicted by the theory, firms in both industries use explicit contractual incentives based on market share. The profitability squeeze in the US car industry due to aggressive buyer discount programs can thus be understood as a consequence of prevailing management incentives.

Suggested Citation

  • Robert Ritz, 2005. "Strategic incentives for market share," Economics Series Working Papers 248, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:248
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    More about this item

    Keywords

    Strategic Delegation; Market Share; Executive Compensation; League Tables;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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