Managerial delegation schemes in a duopoly with endogenous production costs: a comparison of sales and relative profit delegation under centralised unionisation

Nicola Meccheri () and Luciano Fanti

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: In this paper we study how managerial delegation schemes in a duopoly product market interact with wage decisions taken by a monopoly central (industry-wide) union in the labour market. We analyse a model where, at the first stage, firms' owners optimally choose for their managers a delegation contract that can be "sales delegation" or "relative profit delegation"; at the second stage, the union fixes the wage for all (non-managerial) workers in the industry; and finally, at the third stage, managers compete in the product market. Interestingly, our results prove to be more varied with respect to findings by the managerial delegation literature with exogenous production costs for firms. Most notably, it is pointed out that, in equilibrium, both firm profitability and welfare outcomes can be superior under both sales delegation and relative profit delegation, depending on various factors such as the degree of product differentiation and the competition regime.

Keywords: sales delegation; relative profit delegation; unionised duopoly; endogenous wage. (search for similar items in EconPapers)
JEL-codes: J33 J51 L13 (search for similar items in EconPapers)
Date: 2012-06-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-lma
Note: ISSN 2039-1854
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Working Paper: Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation (2012)
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