6533b852fe1ef96bd12ab58b
RESEARCH PRODUCT
A reconsideration of the link between vertical externality and managerial incentives
Denis Claudesubject
Upstream (petroleum industry)050208 financeDelegationStrategy and ManagementProfit maximizationmedia_common.quotation_subject05 social sciencesManagement Science and Operations ResearchMicroeconomicsMonopolistic competitionDownstream (manufacturing)Management of Technology and Innovation0502 economics and businessEconomicsPrecommitment050207 economicsBusiness and International ManagementDuopolyExternalitymedia_commondescription
Previous research revealed that the strategic role of delegation contracts disappears if two quantity†setting firms outsource input production to a monopolistic supplier. I show that this role is restored if the assumption of a downstream duopoly is relaxed. Thus, delegation contracts allow downstream profit†maximizing owners to commit their firms to a behavior that differs from their preferences. This behavior varies nonmonotonically with the number of firms in the downstream market. Corresponding deviations from profit maximization are larger if the upstream monopolist makes a price precommitment. But little to no deviation occurs if the number of firms is large.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2018-04-16 | Managerial and Decision Economics |