Managerial Delegation, Cost Asymmetry and Social Efficiency of Entry

Arijit Mukherjee and Yingyi Tsai

The Economic Record, 2014, vol. 90, issue 288, 90-97

Abstract: type="main" xml:id="ecor12079-abs-0001">

This article examines the welfare implications of entry in oligopolistic markets with separation of management from ownership. In the presence of strategic managerial delegation and cost asymmetry, entry is socially insufficient unless the degree of scale economies is large. This result is in stark contrast to those documented in the extant literature. A key feature of our analysis is that a ‘business stealing’ effect (Mankiw & Whinston, 1986) does not arise for the relatively cost-efficient entrant under managerial delegation. The policy implication emerging from our analysis suggests that entry should be encouraged in industries with strategic managerial delegation, cost asymmetry and not large-scale economies.

Date: 2014
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