Strategic delegation in an international mixed oligopoly

Abstract

We derive equilibrium delegation contracts in an international mixed duopoly with a private firm in one country and a public firm in another. We compare contracts weighting sales to those weighting relative sales. The endogenous equilibrium emerges with relative contracts chosen for both firms when the public firm's country market share is small. We compare this model to an otherwise similar domestic market with a foreign firm and to a single market without international borders. We confirm the use of delegation in all models but only the international market has both firms adopting relative sales contracts.