Biased managers with network externalities |
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Authors: | Kangsik Choi DongJoon Lee Ki-Dong Lee |
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Institution: | 1. Graduate School of International Studies, Pusan National University, Pusan, Korea;2. Faculty of Economics, Osaka Sangyo University, Daito-shi, Japan
Graduate School of Business, Nagoya University of Commerce and Business, Nagoya, Japan;3. Faculty of Economics & Commerce, Keimyung University, Daegu, Korea |
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Abstract: | In network industry under Cournot and Bertrand competition, we examine a model when owners of firms hire biased managers who have incorrect market demand. Contrast to previous studies, we show that (i) regardless of the strength of network externalities when consumers form the responsive and passive expectations, owners realize strategic advantage by hiring biased managers to be more aggressive under Cournot and Bertrand competition, (ii) firms prefer facing passive expectations for the weak network externalities and vice versa for the strong network exteranlities under Bertrand and Cournot competition, (iii) if the network size is sufficiently large, then the prisoner's dilemma that firms hire aggressive managers no longer exists under both competition modes. As with no delegation case, we obtain the different rankings of firms' profit depending on both network externalities and forming of expectations under Cournot and Bertrand competition. |
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Keywords: | Bertrand biased manager Cournot network externalities |
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