Endogenously choosing the timing of setting strategic contracts’ levels and content in a managerial mixed duopoly with welfare-based and sales delegation contracts

Abstract

This paper explores the full observable delay game—which involves the timing of setting one public firm’s and one private firm’s strategic contracts’ levels and content—in a managerial mixed duopoly with a welfare-based delegation a la Nakamura (Int Rev Econ Finance 35:262–277, 2015, J Ind Compet Trade 19:235–261, 2019b, J Ind Compet Trade 19:679–737, 2019c). In this paper, we first show that both the following types of market frameworks can be equilibrium market structures: (1) a market formation in which the manager of the public firm, which has a quantity contract, is the leader and manager of the private firm, which has a price contract and is the follower, and (2) a market configuration in which the manager of the public firm, which has a quantity contract, is the follower, and the private firm, which also has a quantity contract, is the leader. Second, we demonstrate that the form of highest social welfare is achieved under market structure (2). Hence, in such a managerial mixed duopoly, from the perspective of social welfare, it is not as necessary for the relevant authority (including the government) to regulate owners’ free determination of the timing of setting public and private firms’ strategic contracts’ levels and content.