Strategic Delegation in a Durable Goods Monopoly

35 Pages Posted: 12 Dec 2009

See all articles by Tarek Coury

Tarek Coury

University of Oxford

Vladimir Petkov

Victoria University of Wellington - School of Economics & Finance

Date Written: January 28, 2005

Abstract

This paper studies a simultaneous-move infinite-horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys monetary rewards but dislikes production effort. We show that cheap delegation enables the principal to attain the precommitment price plan in a time consistent Markov-perfect equilibrium. The paper analyzes the robustness of this result under alternative specifications of timing and objectives. We also provide a numerical characterization of the Markov-perfect equilibrium pricing and remuneration strategies for the case of linear-quadratic payoffs.

Keywords: Games, Monopoly, Pricing decisions, Equilibrium

JEL Classification: L12, D42, C73

Suggested Citation

Coury, Tarek and Petkov, Vladimir, Strategic Delegation in a Durable Goods Monopoly (January 28, 2005). Available at SSRN: https://ssrn.com/abstract=656142 or http://dx.doi.org/10.2139/ssrn.656142

Tarek Coury

University of Oxford ( email )

Department of Economics
Manor Road Building, Manor Road
Oxford, Oxfordshire OX13UQ
United Kingdom

Vladimir Petkov (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

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