Brand loyalty, managerial delegation and position choices: Bertrand versus Cournot competition

Tai-Liang Chen and Mingjie Yang

Regional Science and Urban Economics, 2024, vol. 109, issue C

Abstract: In a mature product market, brands compete aggressively with each other using a marketing mix that includes position, pricing, and managerial delegation to win loyal customers and gain a larger market share. We examine the effects of brand loyalty on the endogenous choices of managerial compensation contracts and optimal brand positions in an uncovered market model. We analytically compare 18 symmetric and asymmetric mutual delegation cases associated with three delegation schemes—no delegation, sales delegation and relative performance (RP) delegation—in the Bertrand and Cournot competition modes. In the case of symmetric mutual contracts, under Bertrand competition, a price commitment effect resulting from the delegation decision weakens the competition, inducing higher prices and profits for both brands regardless of the type of delegation scheme. Under Cournot competition, delegation decisions can be viewed as signals to promote competition, intensifying the degree of competition. To acquire more loyal customers and higher profits, mutual RP delegation is the dominant choice under Bertrand competition, whereas mutual profit maximization is the dominant choice under Cournot competition. Furthermore, the social welfare is the highest when both brands optimally choose the RP delegation under Bertrand or optimally choose no delegation under Cournot; however, consumer surpluses are the lowest in both optimal cases.

Keywords: Customer loyalty; Managerial compensation delegation; Position decision; Bertrand/Cournot competition; Dominant strategy (search for similar items in EconPapers)
JEL-codes: D21 L13 L21 R30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:109:y:2024:i:c:s0166046224000838

DOI: 10.1016/j.regsciurbeco.2024.104052

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