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Managers Compensation and Collusive Behaviour under Cournot Oligopoly

  • Marco, Marini

The aim of the present paper is to show that the existence of a concrete outside option for firms' executives can induce, under specific circumstances, every firm to adopt restrictive output practises. In particular, the paper characterizes the conditions for which, under Cournot oligopoly, existing firms behave more collusively than in a standard Cournot model. It is also shown that room exists for perfect and stable collusive agreements amongst firms. Other interesting findings are also twofold. Firstly, that the equilibrium executives' pay will usually be dependant upon the number of companies initially disposing of the technology and/or of the organizational knowledge required to set up the business. Secondly, that companies' procedures difficult to duplicate can constitute a beneficial form of competition policy in that they induce the firms to behave less collusively in the product market.

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File URL: http://mpra.ub.uni-muenchen.de/31871/1/MPRA_paper_31871.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31871.

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Date of creation: Dec 1997
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Handle: RePEc:pra:mprapa:31871
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  1. Mailath, George J & Postlewaite, Andrew, 1990. "Workers versus Firms: Bargaining over a Firm's Value," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 369-80, July.
  2. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
  3. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  4. Feinstein, Jonathan S. & Stein, Jeremy, 1988. "Employee opportunism and redundancy in firms," Journal of Economic Behavior & Organization, Elsevier, vol. 10(4), pages 401-414, December.
  5. 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 225-64, April.
  6. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Dubey, Pradeep & Mas-Colell, Andreau & Shubik, Martin, 1980. "Efficiency properties of strategies market games: An axiomatic approach," Journal of Economic Theory, Elsevier, vol. 22(2), pages 339-362, April.
  8. Ron Smith & Stefan Szymanski, 1995. "Executive Pay and Performance: The Empirical Importance of the Participation Constraint," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 2(3), pages 485-495.
  9. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 375-410, July.
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