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Strategic incentives for market share

  • Robert Ritz
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    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.

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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper248.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 248.

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    Date of creation: 01 Oct 2005
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    Handle: RePEc:oxf:wpaper:248
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    Web page: http://www.economics.ox.ac.uk/
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    1. van Damme, E.E.C. & Hurkens, J.P.M., 1997. "Games with imperfectly observable commitment," Other publications TiSEM 98d6e8cb-38a1-4341-b53e-d, Tilburg University, School of Economics and Management.
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    6. Fershtman, Chaim & Gneezy, Uri, 2001. "Strategic Delegation: An Experiment," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 352-68, Summer.
    7. Steffen Huck & Wieland Mueller, 1998. "Perfect versus imperfect observability---An experimental test of Bagwell's result," Experimental 9804001, EconWPA.
    8. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
    9. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
    10. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
    11. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
    12. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
    13. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
    14. Jansen,Thijs & Lier,Arie,van & Witteloostuijn,Arjen,van, 2004. "Strategic delegation in oligopoly: the market share case," Research Memorandum 051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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