Strategic Delegation in Successive Oligopolies with Differentiated Firms

11 Pages Posted: 23 Apr 2020

See all articles by Peter Habiger

Peter Habiger

Department of Organization and Economics of Institutions

Michael Kopel

University of Graz

Date Written: March 13, 2020

Abstract

A robust result in the literature on strategic incentives pioneered by Fershtman and Judd (1987), Sklivas (1987), and Vickers (1985) is that under quantity competition firm owners induce their managers to make aggressive quantity choices in the product market. We revisit this result in a standard framework of successive oligopolies with differentiated products. We show that depending on the degree of product substitution, the number of upstream suppliers, and the number of downstream rivals, owners might prefer managerial incentives to be either profit-based or punish their manager for additional sales, i.e. induce them to act soft instead of tough. We further show that firm and supplier profits can be higher under price competition than under quantity competition, but that consumer surplus and total welfare are always higher under price competition.

Keywords: Strategic Delegation, Successive Oligopolies, Price and Quantity Competition

JEL Classification: L1, L2, M2

Suggested Citation

Habiger, Peter and Kopel, Michael, Strategic Delegation in Successive Oligopolies with Differentiated Firms (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3563620 or http://dx.doi.org/10.2139/ssrn.3563620

Peter Habiger

Department of Organization and Economics of Institutions ( email )

Universitaetsstrasse 15 / FE
graz
Austria

Michael Kopel (Contact Author)

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

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