Asymmetric Performance Evaluation Under Quantity and Price Competition with Managerial Delegation

Hamamura Jumpei () and Ramani Vinay ()
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Hamamura Jumpei: School of Business Administration, Kwansei Gakuin University, 1-155 Uegahara Ichiban-Cho, Nishinomiya, Hyogo 662-8501, Japan
Ramani Vinay: Department of Industrial & Management Engineering, Indian Institute of Technology, Kanpur, 208016, India

The B.E. Journal of Economic Analysis & Policy, 2024, vol. 24, issue 3, 701-750

Abstract: In this paper, we consider asymmetric performance evaluation contracts under different product market configurations with managerial delegation and specify the optimal decision-making by the social and relative performance evaluation firms. We present a reversal result on the owner’s choice of the social performance and relative performance evaluation contract as the product market competition type changes from quantity to price competition. Surprisingly, results indicate that the consumer surplus increases as the degree of product substitution increases under quantity competition in a specific economic environment. A firm that considers social performance evaluation produces less, charges a higher price, and earns a lower profit than a firm that uses relative performance evaluation. We also endogenize the choice of performance evaluation systems. While relative performance emerges as the endogenous choice under both modes of product market competition, it leads to lower consumer surplus and social welfare in comparison to an asymmetric performance evaluation system.

Keywords: managerial delegation; price competition; quantity competition; relative performance; social performance (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejeap-2023-0135

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