Firms’ strategic delegation with heterogeneous consumers

Abstract

We revisit firms’ strategic delegation in a Cournot game. We consider a market comprising two consumer groups, with either a high or low willingness to pay. In this market, we first consider firms’ identical marginal costs and show that either/both firms’ owners may strategically abandon the delegation option to avoid price collapse. We find three types of delegation decisions with either/both/no firm delegating in equilibrium. We further consider firms’ asymmetric marginal costs and show that the asymmetric equilibrium wherein only the less efficient firm delegates will exist in a wider parameter range, compared to that wherein only the more efficient firm delegates. Moreover, delegation may enable the less efficient firm to achieve a higher profit than her rival.