Managerial Incentives and Collusive Behaviour

Giancarlo Spagnolo

No 4506, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I characterize the effects of empirically observed managerial incentives on long-run oligopolistic competition. When managers have a preference for smooth time-paths of profits ? as revealed by the empirical literature on ?income smoothing? ? manager-led firms can sustain collusive agreements at lower discount factors. Capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor, independent of contracts? duration. When managers have these preferences/incentives and demand fluctuates, ?price wars during booms? need not occur: the most collusive price may then be pro-cyclical. Corporate governance codes invoking transparency may reinforce these effects.

Keywords: Corporate governance; Delegation; Earnings management; Executive compensation; Collusion; Income smoothing; Oligopoly; Ownership and control (search for similar items in EconPapers)
JEL-codes: D43 G30 J33 L13 L21 (search for similar items in EconPapers)
Date: 2004-07
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Journal Article: Managerial incentives and collusive behavior (2005)
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