Abstract
AbstractThe purpose of this paper is to present a general conjectural variation model to provide an integrative treatment of strategic management under duopoly. It is shown that the nature of the desired distortion of managers' incentives depends critically on the magnitudes of the managers' conjectural variations with respect to outputs as well as the owners' conjectural variations with respect to incentives. In particular, it has been demonstrated that when the owners' conjectural variations with respect to incentives are zero, the owners will motivate their managers to maximize profits and provide no incentives for sales under consistent conjectures. However, the owners make their managers behave more (less) aggressively and produce more (less) than profit‐maximizers if the managers' conjectural variations with respect to outputs are larger (smaller) than the actual response.
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