Managers Compensation and Collusive Behaviour under Cournot Oligopoly
Marco A. Marini
Sapienza Università di Roma ; CREI, University Rome III
December 1, 1998
CORE Discussion Paper, 2/98, Université Catholique de Louvain.
The aim of the present paper is to show that the existence of a concrete outside option for firms' executives can induce, under specific circumstances, every firm to adopt restrictive output practices. In particular, the paper characterizes the conditions for which, under Cournot oligopoly, existing firms behave more collusively than in a standard Cournot model. It is also shown that room exists for perfect and stable collusive agreements amongst firms. Other interesting findings are also twofold. Firstly, that the equilibrium executives' pay will usually be dependent upon the number of companies initially disposing of the technology and/or of the organizational knowledge required to set up the business. Secondly, that companies' procedures difficult to duplicate can constitute a beneficial form of competition policy in that they induce the firms to behave less collusively in the product market.
Number of Pages in PDF File: 16
Keywords: manager compensation, CEOs, outside option, oligopoly, collusion
JEL Classification: D21, D31, D43working papers series
Date posted: June 28, 2011 ; Last revised: June 30, 2011
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