Optimal Compensation Structure in Consumer Cooperatives Under Mixed Oligopoly
University of Graz
Marco A. Marini
Sapienza Università di Roma ; CREI, University Rome III
June 23, 2012
The main aim of this paper is to derive properties of an optimal compensation scheme for consumer cooperatives (Coops) in situations of strategic interaction with profitmaximizing firms (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 straight salary to its manager whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, due to consumers’ preferences, a Coop is per se highly expansionary in term of output and, therefore, does not need to provide strong strategic incentives to their managers to expand output aggressively by undercutting its rival.
Number of Pages in PDF File: 19
Keywords: Consumer Cooperatives, Strategic Incentives, Price Competition, Oligopoly
JEL Classification: C70, C71, D23, D43working papers series
Date posted: June 24, 2012
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