Location choice with delegation: Bertrand vs. Cournot competition

Wen-Jung Liang, Ching-Chih Tseng and Kuang-Cheng Andy Wang

Economic Modelling, 2011, vol. 28, issue 4, 1774-1781

Abstract: The conventional wisdom indicates that firms' optimal locations are sensitive to the modes of product-market competition, leading to a difficulty for firms to make concrete location decisions. This difficulty is especially crucial for the high entry-cost firms. The paper develops an uncovered-market model à la Economides (1984) to explore this sensitivity by taking into account a delegation game. It shows that firms' location configurations remain unchanged regardless of the modes of product-market competition as the owners offer the managers a contract with a relative-performance incentive scheme. Moreover, the paper shows that, by introducing a delegation game, the competition between managers under Bertrand competition is mitigated such that the managers have no incentive to choose price undercutting as they locate themselves far enough away from each other.

Keywords: Location; choice; Delegation; game; Relative-performance; incentive; scheme; Bertrand; competition; Cournot; competition (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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