Strategic Delegation and Mergers in Oligopolistic Contests

GEABA - Discussion Paper No. 02-06

45 Pages Posted: 5 May 2002

See all articles by Matthias Kräkel

Matthias Kräkel

University of Bonn - Economic Science Area; Institute for the Study of Labor (IZA)

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management; IZA Institute of Labor Economics

Date Written: 2002

Abstract

In this paper, we combine the strategic delegation approach of Fershtman-Judd-Sklivas with contests. The results show that besides a symmetric equilibrium there also exist asymmetric equilibria in which one owner induces pure sales maximization to his manager so that all the other firms drop out of the market. If merging is allowed on an initial stage, the resulting merged subgame perfect equilibria show that there is strictly more merging under contest than under Cournot competition. We also compare our findings with the previous results on contest models with delegation and find that the outcomes for the Fershtman-Judd-Sklivas incentive scheme clearly differ. Especially, in our model we have a prisoner's-dilemma like situation where delegation is individually rational for each owner, but all owners are worse off compared to non-delegation.

JEL Classification: L1, M2

Suggested Citation

Kräkel, Matthias and Sliwka, Dirk, Strategic Delegation and Mergers in Oligopolistic Contests (2002). GEABA - Discussion Paper No. 02-06. Available at SSRN: https://ssrn.com/abstract=308540 or http://dx.doi.org/10.2139/ssrn.308540

Matthias Kräkel (Contact Author)

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
BWLII
D-53113 Bonn
Germany
+49 228 73 92 11 (Phone)
+49 228 73 92 10 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management ( email )

Koln, 50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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