STRATEGIC DELEGATION IN CONSUMER COOPERATIVES UNDER MIXED OLIGOPOLY

Michael Kopel and Marco Marini

No 1306, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

Abstract: The main aim of this paper is to study the propensity of consumer cooperatives (Coops)to use incentive schemes in situations of strategic interaction with profit-maximizing ?rms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a ?at wage to its manager relying instead on her intrinsic motivation, whereas the profit-maximizing rival adopts a variable, high- powered incentive scheme. The main rationale is that, by recruiting a manager whose preferences are aligned with the company goals (e.g., a consumer-owner), the Coop is per se highly expansionary in term of output. Therefore, the Coop does not need to rely on an externally hired manager who sets prices aggressively to expand market share and quantity. Furthermore, adopting a monetary reward based on sales and profits leads to distorted incentives with respect to the Coop's goal, which after all is the welfare of its members.

Keywords: Consumer Cooperatives; Strategic Incentives; Price Competition; Oligopoly. (search for similar items in EconPapers)
JEL-codes: C70 C71 D23 D43 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013, Revised 2013
New Economics Papers: this item is included in nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_13_06.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: Strategic delegation in consumer cooperatives under mixed oligopoly (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:urb:wpaper:13_06

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