Strategic Delegation with Differentiated Products

Dinah A. Cohen-Vernik (), Li Yang () and Amit Pazgal ()
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Dinah A. Cohen-Vernik: University of Houston-Downtown
Li Yang: Chinese University of Hong Kong-Shenzhen
Amit Pazgal: Rice University

Customer Needs and Solutions, 2022, vol. 9, issue 3, No 3, 66-73

Abstract: Abstract This paper contributes to the analytical research on the profit implications of delegating production decisions to managers in the context of cost-asymmetric competing firms. We generalize previous studies by relaxing the assumption of product homogeneity. We demonstrate that the interplay between strategic delegation and the degree of product differentiation may lead to the reversal of the classic profit-ranking of Cournot equilibria. We discuss the drivers beyond the pure marginal cost asymmetry, which lead to this reversal: specifically, how the abilities to delegate production decisions and to choose the extent of such delegation further expand the parameter space where the high-cost firm is earning higher equilibrium profits compared to its more efficient rival.

Keywords: Strategic delegation; Cournot competition; Differentiated duopoly; Profit ranking (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s40547-022-00130-7

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