Incentives in supply function equilibrium

Henrik Vetter

No 2014-38, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The author analyses delegation in homogenous duopoly under the assumption that the firm-managers compete in supply functions. In supply function equilibrium, managers' decisions are strategic complements. This reverses earlier findings in that the author finds that owners give managers incentives to act in an accommodating way. As a result, optimal delegation reduces per-firm output and increases profits to above-Cournot profits. Moreover, in supply function equilibrium the mode of competition is endogenous. This means that the author avoids results that are sensitive with respect to assuming either Cournot or Bertrand competition.

Keywords: Delegation; incentives; supply function equilibrium (search for similar items in EconPapers)
JEL-codes: D22 D43 L22 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201438

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