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Competition within firms

Author

Listed:
  • Lisa Bruttel
  • Simeon Schudy

Abstract

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.

Suggested Citation

  • Lisa Bruttel & Simeon Schudy, 2010. "Competition within firms," TWI Research Paper Series 62, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  • Handle: RePEc:twi:respas:0062
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    References listed on IDEAS

    as
    1. Pedro Rey-Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    2. Gary Bornstein & Uri Gneezy, 2002. "Price Competition Between Teams," Experimental Economics, Springer;Economic Science Association, vol. 5(1), pages 29-38, June.
    3. 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, June.
    4. Raab, Philippe & Schipper, Burkhard C., 2009. "Cournot competition between teams: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 691-702, November.
    5. Huck, Steffen & Muller, Wieland & Normann, Hans-Theo, 2004. "Strategic delegation in experimental markets," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 561-574, April.
    6. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    7. 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.
    8. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
    9. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
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    More about this item

    Keywords

    Cournot Competition; Subsidiary; Subcompany; Experiment;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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