The Bargaining–sales‐delegation Game

This article revisits the managerial delegation literature led by Vickers ( 1985 ), Fershtman and Judd ( 1987 ) and Sklivas ( 1987 ) by introducing a bargaining mechanism between owners and managers over managerial contracts. It shows that the degree of bargaining interacts with the extent of product differentiation in determining whether the sub‐game perfect Nash equilibrium is sales delegation or profit maximisation. In contrast with the classical result, no sales delegation emerges and the typical prisoner's dilemma of the managerial delegation literature is solved. This holds in both contexts of Cournot and Bertrand rivalries. The article also provides results for the more general cases with heterogeneous managerial bargaining power and endogenous decisions of the owners regarding the bargaining power of the manager that should be or not be hired in a firm. Copyright © 2016 John Wiley & Sons, Ltd.     

Bargaining over managerial contracts in delegation games: managerial power,contract disclosure and cartel behavior

Modern corporate governance codes include clauses requiring the disclosure of managerial compensation. Such codes have been installed to protect shareholders' interests. In this paper, we explore the impact of such disclosure on consumer welfare. We consider two‐stage delegation games in which owner‐shareholders negotiate about compensation with their managers in the game's first stage. At the end of the first stage, the managerial compensation contract outcomes of the bargaining process are publicly announced. In the second stage, Cournot competition evolves. We prove that sales delegation generates equilibria radically different from relative performance delegation. Using classical Cournot as the benchmark, contractual bargaining over sales compensation gives tougher product market competition—and hence higher consumer surplus. The opposite holds true for relative performance delegation. Then, cartel behavior is promoted, reducing consumer surplus. Copyright © 2007 John Wiley & Sons, Ltd.     

R&D spillovers and strategic delegation in oligopolistic contests

Considering oligopolistic contests with R&D spillovers and strategic delegation three results can be obtained: (1) There exist multiple asymmetric equilibria where one owner highly favors sales as a basis for his manager's incentives which drives the other firm out of the market. (2) If R&D spillovers are zero, a managerial firm will have a strong strategic advantage when competing with an entrepreneurial firm. If both owners endogenously decide about delegation, each owner's dominant strategy will be to delegate, given that the manager's reservation value is not too large. (3) If R&D spillovers are maximal, collusive market outcomes become very likely, which makes strategic delegation less important. Copyright © 2004 John Wiley & Sons, Ltd.     

Delegation and Incentives under Evolutionarily Stable Conjectures

Existing results show that in a homogenous Cournot duopoly, commitment by delegation harms profit. This conclusion presupposes that market conduct is the same whether incentives are aggressive or accommodating. We study delegation and incentives under evolutionarily stable conjectures and show how performance pay co‐determines market conduct. In fact, in equilibrium with evolutionarily stable conjectures, we show that commitment through delegation leads to a profit increase. Manipulation of managerial incentives produces less competition and therefore benefits firms' owners even in symmetric homogenous oligopoly. Copyright © 2016 John Wiley & Sons, Ltd.     

Bargaining over Managerial Contracts in Delegation Games: The Generalized Oligopolistic Case

The main purpose of this paper is to disclose the properties of the equilibrium outcomes in the differentiated‐products model with two stages: (i) owner‐shareholders negotiate managerial compensation with their managers that comprises their profits and sales (sales delegation) and (ii) they engage in their market competition. The other purpose of this paper is to study the differentiated goods model in which an owner bargains the managerial compensation with her/his manager that comprises her/his profit and her/his rival's profit (relative performance delegation). We further investigate the situation wherein the firm with sales delegation and the firm with the relative performance delegation coexist. Copyright © 2012 John Wiley & Sons, Ltd.     

Endogenous timing of managerial delegation contracts in a unionized duopoly

In a multiple‐stage duopoly game with strategic delegation and unionized labor market, this paper analyzes whether firms' owners decide managerial incentive contracts sequentially or simultaneously. When firms compete in quantities, firms' owners can choose incentive contracts simultaneously or sequentially, depending on the unions' relative bargaining power and the degree of product differentiation. Instead, when firms compete in prices, firms' owners set incentive contracts sequentially with substitute goods and simultaneously with complement goods.     

Apple's disaster: Linking two‐sided markets and strategic delegation

Asymmetric pricing structure and different intergroup network externalities are characteristics of two‐sided markets not captured in the analysis of one‐sided markets. Focusing on Cournot duopoly where membership decision may be delegated to a manager, several equilibrium regimes are sustained depending on the fixed cost of managerial hiring and strength of the network externality exerted by the side whose demand is more price sensitive. The change from null to full delegation sharpens the asymmetric pricing structure and reduces the price level in two‐sided markets. Contrary to one‐sided markets with direct network effects, the prisoner's dilemma holds for sufficiently strong indirect network externalities. Imperfect interside discrimination of managerial incentives ensures profit maximization and efficient consumers' allocation. Private hiring should occur when the two‐sided market exhibits symmetric pricing structure. An explanation for Apple's unprecedented event is provided. The reduction of revenue and managerial bonus in 2016 may be justified by the dissemination of full delegation in the Chinese information technology industry. Apple's upcoming strategy may consist on reducing both access prices, although the side whose demand is more price sensitive should have a greater price reduction. Alternatively, improving the content quality may constitute Apple's corporate strategy, thereby inducing a skimming pricing strategy on Chinese rivals.     

Organizational Structure and Product Market Competition

This paper explores the link between delegation of authority and product market competition. It considers a firm that is contemplating entering a market served by an incumbent. The firm can adopt either a decentralized or a centralized authority structure. In the former, authority is delegated to an agent, while in the latter, it is retained by the principal. We address the questions of how the toughness of future product market competition affects the delegation decision, and how this decision in turn affects product market competition. The delegation decision is determined by a trade‐off between inducing the agent to take greater initiative and accepting lower operating profits from a less efficient decision taken by the agent.     

Managerial delegation games and corporate social responsibility

In a duopoly in which firms universally engage in corporate social responsibility (CSR) activities, this paper shows that, in contrast to the main tenet of the received managerial delegation literature, if the CSR sensitivity is sufficiently high: (a) when both firms delegate output decisions to managers, at the equilibrium profit (resp. consumer welfare) is higher (resp. lower) than when firms are pure CSR; (b) in a managerial delegation game, asymmetric multiple subgame perfect Nash equilibria emerge in which one firm delegates and the rival does not. These results hold under both the “sales delegation” and “relative profits” manager's bonus schemes.     

External bargaining versus internal manipulation: A theory of managerial delegation

Does the competition mode influence the delegation decisions of the firm owners? By constructing a vertical negotiation game model, we find that under Cournot competition in the downstream market, the downstream firm's owner will not choose delegation, whereas under Bertrand competition, the downstream firm's owner will choose delegation. If the product substitution is relatively large, the adoption of delegation management by the owners of downstream firms under Bertrand competition will bring higher profits. It further shows that compared with the situation of no delegation, delegation management may reverse the social welfare ranking under Bertrand and Cournot competitions.     

Strategic trade policy with bargaining over managerial contracts

This paper re‐examines the well‐known activist regime's inefficiency (governments set export subsidies) in a sales–delegation game with owner–manager bargaining over contracts. Contrary to the received literature, this bargaining process may (a) induce governments to set a tax if products are not too substitute or complements and (b) lead to an efficient (inefficient) equilibrium provided that products are sufficiently differentiated (not too complements). Therefore, unilateral public intervention can be optimal: in case of rival governments' retaliation, under appropriate product competition degrees, welfares are larger than under free trade even for small managers' power. Thus, managerial delegation practices are crucial also for international trade issues.     

Who is more aggressive under vertical product differentiation?

In this paper, we introduce quality differences in vertical market and compare the managerial delegation contracts of downstream firms. We find that the owner of a downstream firm that produces low-quality products induces the manager to behave more aggressively when the marginal cost coefficient is low. While when marginal cost coefficient is high, the owner of a downstream firm that produces high-quality products induces the manager to behave more aggressively. It is further found that managerial delegation can improve the profits of downstream firms but reduce the consumer surplus and social welfare.     

Should managerial delegation contracts be made before or after union wage setting? A game‐theoretic analysis

This paper analyzes a multiple‐stage game in which, at the final stage, two (managerial) firms compete over quantities in the product market. Prior to this stage, firm‐specific unions set the workers' wages, while the owners of both firms hire managers and provide them with incentive contracts. Owners can freely decide to arrange the managerial contract before or after the (non‐managerial) wage determination stage. Hence, the endogenous choice of the incentive contract stage is derived. The possibility of multiple equilibria arises, where both owners choose managerial contracts before or after unions' wage setting, crucially depending on unions' preferences. Such results also prove to be true for a remarkable degree of asymmetry in preferences over wages vis‐à‐vis employment across unions.     

A Note on Managerial Delegation with Asymmetric and Convex Costs

In this note, we investigate if the standard result by the managerial delegation literature, i.e., the sub‐game perfect Nash equilibrium is not Pareto‐optimal from the firms' viewpoint, still applies when asymmetric and convex costs are introduced into the analysis. In such a framework, the managerial delegation choice still represents a sub‐game Nash perfect equilibrium, but the more efficient firm may obtain higher profits provided that the degree of cost asymmetry between firms is sufficiently large. Copyright © 2015 John Wiley & Sons, Ltd.     

Price versus Quantity in a Duopolistic Market with Bargaining over Managerial Delegation Contracts

This paper studies the endogenous choices of strategic contracts in a duopoly with bargaining between the owner and manager of each firm over the content of the managerial delegation contract. We show that when the bargaining power of the manager relative to that of the owner within each firm is sufficiently high, quantity competition based on the quantity contracts chosen by the owners of both firms can be uniquely observed in the equilibrium, whereas quantity competition and price competition can be observed in the equilibrium when this relative bargaining power is sufficiently low. Copyright © 2015 John Wiley & Sons, Ltd.     

Strategic Incentives for Keeping One Set of Books in International Transfer Pricing

We study the equilibrium accounting and transfer pricing policies in a multinational duopoly with price competition in the final product market. We find that the firms in a duopoly can benefit from strategically using the same transfer price for tax and managerial purposes instead of using separate transfer prices for both objectives. According to our results, the practice of one set of books should be the prevalent accounting method in markets with a small number of competitors and similar products.     

Strategic Delegation with Multiproduct Firms

This paper shows that a multiproduct firm may find it optimal not to delegate the sales of all products and therefore to employ different distribution channels for different products. It faces the following trade-off: There is a strategic effect associated with delegation, but if both products' sales are delegated, intrafirm competition is not internalized. By delegating the sales of just one of the products while selling the other product directly—partial delegation—the multiproduct manufacturer strikes just the right compromise: The externalities between its owns products are internalized partially while a strategic advantage is achieved against its rival single-product manufacturer. Partial delegation also holds if both products are sold by a common retailer; it dominates full delegation when both manufacturers are multiproduct firms .     

Ownership structure and corporate liquidity policy

This study analyzes the relationship between corporate liquidity (i.e. the fraction of assets invested in cash and marketable securities) and managerial ownership in the firm's stock. We postulate a negative relationship between excess liquidity and managerial stock ownership as the managers' interests shift from protecting the value of their human capital to maximizing the value of their stockholdings. This managerial behavior is constrained by the disciplining forces of the firm's product market structure and the market for corporate control. While the tests fail to reveal any significant impact of managerial stock ownership, they show that firm liquidity is positively related to the firm's ability to earn economic rents.     

Optimal zoning of managerial duopoly

This paper investigates optimal zoning of two managerial firms in an unconstrained linear city. Comparing with the case in which firms are not managerial type, the strategic delegation increases the incentives of one firm to locate farther from the rival. Then, a welfare function is introduced to highlight zoning regulation as an influential competition policy tool. Depending on the regulator's objective function and the timing of location choice, we provide a new mechanism that allows the regulator to attain the optimal locations of managerial firms and can lead to strong or weak competition.     

Managerial optimism and investment choice

This paper analyzes whether it might be desirable for a firm to hire an overoptimistic manager to commit to a certain R&D strategy. I consider a Cournot model with an ex‐ante R&D stage where firms can invest in cost reduction before product market competition takes place. I show that firms want to hire overoptimistic managers and argue that a manager's type may serve as a substitute for strategic delegation via contracts. Copyright © 2010 John Wiley & Sons, Ltd.