Strategic delegation under cost asymmetry

Abstract

We revisit the two-stage duopoly game with strategic delegation and asymmetric technologies of Sen and Stamatopoulos (2015). We show that their conclusions are driven by the restrictive assumption that the extent of delegation to managers is confined to a binary set. Allowing for a continuous set of delegation incentives, we prove that the delegation stage is a prisoners’ dilemma, the unique subgame perfect equilibrium entailing both firms hiring managers. At equilibrium, the more efficient firm makes higher profits.