Intrafirm Conflicts and Interfirm Price Competition

Werner Güth (), Kerstin Pull and Manfred Stadler

No 2011-042, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We study interfirm price competition in the presence of horizontal and vertical intrafirm conflicts in each firm. Intrafirm conflicts are captured by a principal-agent framework with firms employing more than one agent and implementing a tournament incentive scheme. The principals offer premium incentives in the sense of revenue shares to which agents react by proposing a sales price. Introducing such intrafirm conflicts results in higher prices and lower effort levels. Increasing the number of agents lowers the optimal surplus share of the agents as well as the individual effort and the sales prices. Firm profits first increase and then decrease when employing more and more agents suggesting that principals should employ an intermediate number of agents.

Keywords: Price competition; Agency theory (search for similar items in EconPapers)
JEL-codes: C72 L22 M52 (search for similar items in EconPapers)
Date: 2011-10-05
New Economics Papers: this item is included in nep-bec and nep-com
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2011-042

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