Cost-Saving production technologies and strategic delegation

Juan Carlos Bárcena Ruiz and Norma Olaizola ()
Authors registered in the RePEc Author Service: Juan Carlos Bárcena-Ruiz

IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: This work analyzes a managerial delegation model in which firms that produce a differentiated good can choose between two production technologies: a low marginal cost technology and a high marginal cost technology. For the former to be adopted more investment is needed than for the latter. By giving managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we find that Bertrand competition provides a stronger incentive to adopt the cost-saving technology than the strict profit maximization case. However, the results may be reversed under Cournot competition. We show that if the degree of product substitutability is sufficiently low (high), the incentive to adopt the cost-saving technology is larger under strict profit maximization (strategic delegation).

Keywords: cost saving production technologies; strategic delegation; duopoly (search for similar items in EconPapers)
Date: 2004-02
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: COST‐SAVING PRODUCTION TECHNOLOGIES AND STRATEGIC DELEGATION* (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ehu:ikerla:6495

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Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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