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Hiring a manager or not? When asymmetric equilibria arise under outsourcing to a rival

Luciano Fanti and Marcella Scrimitore ()

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

Abstract: This paper reconsiders the issue of the endogenous choice of delegation in a market in which a vertically integrated producer (VIP) sells an input to a downstream competitor. The choice of whether to hire a manager or not is made at a preplay stage of a game developed by assuming that, within managerial firms, owners provide their managers with incentives affecting both the VIP's decision regarding the input price and retail competition. Our findings rule out that both the symmetric choices of being managerial or entrepreneurial can be implemented in equilibrium when firms compete A la Cournot, which contrasts with previous literature. The paper brings into focus the role of product differentiation in delivering asymmetric equilibria as solutions of the endogenous delegation game.

Keywords: Managerial delegation; duopoly; vertically integrated firm. (search for similar items in EconPapers)
JEL-codes: D43 L13 L21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mic
Date: 2017-01-01
Note: ISSN 2039-1854
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2017/220

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