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Strategic Delegation In Consumer Cooperatives Under Mixed Oligopoly

  • Michael Kopel


    (Department of Organization and Economics of Institutions, University of Graz, Graz)

  • Marco Marini


    (Department of Computer, Control and Management Engineering, Università "La Sapienza" Roma)

The main aim of this paper is to study the propensity of consumer cooperatives (Coops)to use incentive schemes in situations of strategic interaction with profit-maximizing rms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a ‡at wage to its manager relying instead on her intrinsic motivation, whereas the profit-maximizing rival adopts a variable, high- powered incentive scheme. The main rationale is that, by recruiting a manager whose preferences are aligned with the company goals (e.g., a consumer-owner), the Coop is per se highly expansionary in term of output. Therefore, the Coop does not need to rely on an externally hired manager who sets prices aggressively to expand market share and quantity. Furthermore, adopting a monetary reward based on sales and profits leads to distorted incentives with respect to the Coop's goal, which after all is the welfare of its members.

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Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1306.

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Length: 21 pages
Date of creation: 2013
Date of revision: 2013
Handle: RePEc:urb:wpaper:13_06
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