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Product Differentiation and Relative Performance Evaluation in an Asymmetric Duopoly

  • Aditi Sengupta

    ()

    (Southern Methodist University)

In a model of managerial delegation in a duopoly with asymmetric costs, I show that an increase in the intensity of market competition (product differentiation) increases the absolute weight placed on rival's profit (relative performance) in the managerial compensation scheme for both firms and also increases market concentration. The relatively efficient (larger) firm always places higher weight on rival's performance and obtains higher market share.

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File URL: ftp://ftp1.economics.smu.edu/WorkingPapers/2007/Sengupta/sengupta1.pdf
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Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0708.

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Length: 9 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:smu:ecowpa:708
Contact details of provider: Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

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  1. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  2. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  3. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
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