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Oligopolistic Screening and Two-way Distortion

Author

Listed:
  • Michela Cella

    (Department of Economics, University Of Milan, Bicocca)

  • Federico Etro

    (Department of Economics, University Of Venice, Ca� Foscari)

Abstract

We analyze the choice of incentive contracts by oligopolistic firms that compete on the product market. Managers have private information and in the first stage they exert cost reducing effort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings.

Suggested Citation

  • Michela Cella & Federico Etro, 2010. "Oligopolistic Screening and Two-way Distortion," Working Papers 2010_28, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2010_28
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    References listed on IDEAS

    as
    1. Marc Ivaldi & David Martimort, 1994. "Competition under Nonlinear Pricing," Annals of Economics and Statistics, GENES, issue 34, pages 13-69.
    2. Federico Etro & Michela Cella, 2013. "Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 488-512, September.
    3. Bertoletti, Paolo & Poletti, Clara, 1996. "A Note on Endogenous Firm Efficiency in Cournot Models of Incomplete Information," Journal of Economic Theory, Elsevier, vol. 71(1), pages 303-310, October.
    4. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring.
    5. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
    6. Piccolo, Salvatore & D'Amato, Marcello & Martina, Riccardo, 2008. "Product market competition and organizational slack under profit-target contracts," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1389-1406, November.
    7. Lockwood, Ben, 2000. "Production Externalities and Two-way Distortion in Principal-multi-agent Problems," Journal of Economic Theory, Elsevier, vol. 92(1), pages 142-166, May.
    8. Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
    9. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    10. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    11. S. Lael Brainard & David Martimort, 1996. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(1), pages 81-105.
    12. repec:adr:anecst:y:1994:i:34:p:03 is not listed on IDEAS
    13. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    14. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Giovanna Bimonte & Maria Grazia Romano & Maria Russolillo, 2021. "Green Innovation and Competition: R&D Incentives in a Circular Economy," Games, MDPI, vol. 12(3), pages 1-14, September.
    2. Federico Etro & Michela Cella, 2013. "Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 488-512, September.
    3. Salvatore Piccolo, 2011. "Communicating Vertical Hierarchies: the Adverse Selection Case," CSEF Working Papers 273, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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    More about this item

    Keywords

    Oligopoly; screening; two way distortion; incentives; RD investment;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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