Template-type: ReDif-Paper 1.0
Author-Name: Jansen,Thijs
Author-Name: Lier,Arie,van
Author-Name: Witteloostuijn,Arjen,van
Author-workplace-name: METEOR
Title: Strategic delegation in oligopoly: the market share case
Abstract: In this paper, we consider a two-stage (sequential) game as introduced by Vickers (1985),Fershtman (1985), Fershtman and Judd (1987) and Sklivas (1987). This game models the situation where the owners of competing firms manipulate their managers'' incentive contracts for strategic reasons. Instead of the sales volume as part of these contracts, we introduce market share, besides profit, as a natural part of managers'' incentives. Then we compare the results with those obtained for combinations of profits and sales volume, as well as for the classical Cournot model. Concerning an {\eightit n}-firm oligopoly, and compared to the sales-delegation case, it appears that owners put more emphasis on managerial profit-maximizing behavior, indicated by smaller weights attributed to market share in managerial incentive contracts. Social welfare corresponding to the market share-delegation case almost equals welfare associated with the sales-delegation case. However, its components differ.The case of market share-delegation leads to a higher profitability of incumbent rivals and to a lower consumer surplus, in comparison to the sales-delegation case. One may state that the owner''s strategic use of market share as a managerial incentive leads to a (partial) shift of benefits from consumers to producers.
Keywords: mathematical economics; 
Series: Research Memoranda
Creation-Date: 2004
Number: 051
File-URL: http://arnop.unimaas.nl/show.cgi?fid=982
File-Format: application/pdf
File-Size: 239998
Handle: RePEc:unm:umamet:2004051