Biased Managers as Strategic Commitment in a Mixed Duopoly with Relative Profit-Maximizers

Abstract

This study analyzes a mixed duopoly composed of a social welfare-maximizing public firm and a relative profit-maximizing private firm wherein the owners of both firms hire relative profit-maximizing managers biased with respect to the market size they face. In particular, we explore the quantity competition that gives a result different from that obtained in a standard mixed duopoly that differentiates between ownership and management, as considered by (Nakamura, Theor Econ Lett 4(3), 889–896, 2014a), which follows the approach of (Englmaier, and Reisinger, Manag Decis Econ 35(5), 350–356, 2013). More precisely, when we introduce the degree of importance of each firm’s relative performance into quantity competition, we see that the owner of the private firm reverts to a less aggressive manager when the degree of importance is relatively high, which is similar to how the classical strategic managerial delegation works. Furthermore, we consider the influence of an increase in degree of importance of each firm’s relative performance on the aggressiveness of managers hired by both the public and private firm. Moreover, we explore the case in which the owner hires his manager with salary based on social welfare.