Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment

Constantine Manasakis (), Evangelos Mitrokostas () and Emmanuel Petrakis ()

No 905, Working Papers from University of Crete, Department of Economics

Abstract: In a differentiated Cournot duopoly, we examine the contracts that firms' owners use to compensate their managers and the resulting output levels, profits and social welfare. If products are either sufficiently differentiated or sufficiently close substitutes, owners use Relative Performance contracts. For intermediate levels of product substitutability, they use Market Share contracts. When owners do not commit over the types of contracts, each type is an owner's best response to his rival's choice. Product substitutability has differential effects on output levels and profits, depending on the configuration of contracts in the industry. Finally, managerial incentive contracts are welfare enhancing if they increase consumers' surplus.

Keywords: Oligopoly; Managerial delegation; Endogenous contracts (search for similar items in EconPapers)
JEL-codes: D43 L21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta and nep-mic
Date: 2009-06-15
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Persistent link: http://EconPapers.repec.org/RePEc:crt:wpaper:0905

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