Input Pricing and Market Share Delegation in a Vertically Related Market: Is the Timing Order Relevant? |
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Authors: | Leonard FS Wang |
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Institution: | Department of Applied Economics , National University of Kaohsiung , No.700, Kaohsiung University Road, Nan‐Tzu District 811, Kaohsiung, Taiwan, ROC |
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Abstract: | This paper adds to the literature on the strategic use of managers’ contracts in competition by examining whether market‐share delegation, in which managers receive rewards based on a combination of profits and market share, and the order of moves affect input pricing in a vertically related market. It shows that: (i) input pricing is not affected by delegation form and the order of moves between upstream and downstream firms under quantity competition; (ii) downstream firms obtain the same profit as in the simple Nash equilibrium regardless of delegation forms in a delegation–input price–quantity competition game; and (iii) the upstream monopolist will set input price beforehand regardless of the delegation form. Since the outcomes in our model create higher quantity and lower price in a Cournot product market, it lessens the double‐marginalization problem in such a vertically separated industry. |
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Keywords: | Vertical Externality Input Pricing Market‐share Delegation Sales Delegation Timing Order |
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