A note on strategic delegation: The market share case

Thijs Jansen, Arie van Lier, Arjen van Witteloostuijn*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We consider a two-stage market share delegation game with two competing firms. Each owner delegates the production decision to a manager. Each manager's remuneration is a weighted sum of profits and market share. The market share delegation game results in higher duopoly profits than the sales delegation game. Both output delegation models lead to more aggressive managerial behavior than the standard Cournot case, implying lower profitability and higher social welfare: similar results are obtained for the Bertrand version of the delegation model. Market share delegation is the dominant strategy in a game in which owners can choose not to hire a manager or, if they do so, to pay their manager a bonus based on profits and sales or market share.

Original languageEnglish
Pages (from-to)531-539
Number of pages9
JournalInternational Journal of Industrial Organization
Volume25
Issue number3
DOIs
Publication statusPublished - 1 Jun 2007
Externally publishedYes

Keywords

  • Managerial incentives
  • Oligopoly
  • Strategic delegation

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