Rivalry Restraint as Equilibrium Behavior |
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| Authors: | Engelbert J Dockner Clemens Löffler |
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| Affiliation: | 1. Department of Finance, Accounting and Statistics, Vienna University of Economics and Business, Welthandelsplatz 1,, Austria;2. Department of Business Administration, University of Vienna, Oskar‐Morgenstern‐Platz, Austria |
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| Abstract: | Rivalry restraint has received a lot of attention as a theory of profits in recent research on business strategy. Its economic rationale is explained as the consequences of either exogenous or endogenous anticompetitive forces present in different industries. In this paper, we use a dynamic oligopolistic industry model and show that rivalry restraint emerges as equilibrium behavior among firm owners who delegate decisions to managers. In the corresponding two‐stage game, managers choose optimal production rates in a dynamic Cournot market and owners set incentives for managers, acting sequentially rational. Equilibrium incentives correspond to rivalry restraint, that is, managers are less aggressive in the product market with lower outputs and increasing profits for all firms in the industry. |
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