Strategic Managerial Delegation Research Articles

Competitive CSR in a strategic managerial delegation game with a multiproduct corporation

We study the firm’s strategic choice of corporate social responsibility (CSR) in a managerial delegation framework where a multiproduct corporation competes against a single plant firm. We examine simultaneous-move versus sequential-move in output choices when CSR’s strategic level is simultaneously chosen in the first stage. We show that both firms adopt (asymmetric) CSR in a simultaneous-move game, whereas only the follower firm adopts CSR (but not the leader firm) in sequential-move games. In an endogenous timing game in output choices, we also show that a simultaneous-move is an equilibrium when the products are substitutes or weak complements, while a single plant firm’s leadership is otherwise wherein the multiproduct corporation might choose negative CSR. Our findings can explain the observed phenomenon of different industries in which firms’ CSR activities are more or less (even non-CSR or negative CSR), commonly widespread in the real world. It also partially helps us understand CSR’s strategic motives and its policy relations with the firm’s profits.

Cooperation with a multiproduct corporation in a strategic managerial delegation

We consider an industry composed of a multiproduct corporation that adopts corporate social responsibility (CSR) as a strategic managerial delegation and examine the profit‐incentive to form a cooperative group. We find that competition is an equilibrium for any degree of substitutability and yields the highest CSR, which is increasing in the degree of substitutability. We also show that full cooperation is an equilibrium for lower substitutability but induces no CSR, whereas partial cooperation with one uniplant firm is an equilibrium for higher substitutability but yields lower CSR than that under competition. Therefore, cooperation might reduce strategic CSR activities, whereas competition will encourage higher CSR but yield lower industry profits.

Taxe environnementale et incitations managériales dans un duopole mixte

Cet article analyse la taxation des émissions de pollution sur un marché où une entreprise semi-publique est en concurrence avec une entreprise privée (nationale ou étrangère). Nous supposons que les propriétaires des firmes engagent un gestionnaire à qui ils délèguent les décisions de production et d’abattement de la pollution. Nous montrons que la politique environnementale est plus sévère dans le duopole mixte national que dans le duopole mixte international. De plus, parce qu’elle conduit à une augmentation de la quantité totale produite dans l’industrie, la délégation engendre une hausse de la taxe environnementale et dégrade la qualité de l’environnement. Par ailleurs, les gouvernements peuvent utiliser la politique environnementale comme un substitut à la privatisation.

Bargaining Over Managerial Contracts: A Note

The theory of strategic managerial delegation has recently been extended by incorporating bargaining over managerial contracts (van Witteloostuijn et.al 2007, etc). Assuming that bargaining involves only the incentive rates of managers, this line of research has shown that market outcomes (profits and social welfare) depend crucially on the intra-firm allocation of bargaining powers. In the current paper we revisit the bargaining framework assuming that negotiations involve all contractual terms (incentive rates and transfers). We show that contrary to the earlier results, the market equilibrium is independent of bargaining powers, the latter determining only the transfers. Hence the outcome of our model is identical to the outcome of the delegation model with no bargaining.

Strategic managerial delegation and industrial policy competition in vertically-related markets

In a successive duopoly in which all firms are private except the home upstream SOE, we show that if the SOE is less efficient than its foreign rival, the home managerial delegation policy will force the SOE to price below marginal cost; otherwise, it will resort to marginal cost pricing to force out its rival. Both upstream firms will not be pure profit maximizers and will compete in profit and sales. The home government will subsidize its downstream firm if the market is large or the foreign rival's output is small. The foreign government will always subsidize its downstream firm.

Strategic Managerial Delegation and Industrial Policy Competition in Vertically-Related Markets

In a successive duopoly in which all firms are private except the home upstream SOE, we show that if the SOE is less efficient than its foreign rival, the home managerial delegation policy will force the SOE to price below marginal cost; otherwise, it will resort to marginal cost pricing to force out its rival. Both upstream firms will not be pure profit maximizers and will compete in profit and sales. The home government will subsidize its downstream firm if the market is large or the foreign rival's output is small. The foreign government will always subsidize its downstream firm.

Biased Managers as Strategic Commitment in a Mixed Duopoly with Relative Profit-Maximizers

This study analyzes a mixed duopoly composed of a social welfare-maximizing public firm and a relative profit-maximizing private firm wherein the owners of both firms hire relative profit-maximizing managers biased with respect to the market size they face. In particular, we explore the quantity competition that gives a result different from that obtained in a standard mixed duopoly that differentiates between ownership and management, as considered by (Nakamura, Theor Econ Lett 4(3), 889–896, 2014a), which follows the approach of (Englmaier, and Reisinger, Manag Decis Econ 35(5), 350–356, 2013). More precisely, when we introduce the degree of importance of each firm’s relative performance into quantity competition, we see that the owner of the private firm reverts to a less aggressive manager when the degree of importance is relatively high, which is similar to how the classical strategic managerial delegation works. Furthermore, we consider the influence of an increase in degree of importance of each firm’s relative performance on the aggressiveness of managers hired by both the public and private firm. Moreover, we explore the case in which the owner hires his manager with salary based on social welfare.

Competition, strategic delegation and delay in technology adoption

This paper examines how strategic managerial delegation affects firms' timing of adoption of a new technology under different modes of product market competition. It demonstrates that strategic delegation has differential impacts on adoption dates under Cournot and Bertrand competitions. Strategic delegation with ‘own-performance’-based incentive schemes always leads to early adoption in markets with Bertrand competition compared to that under no-delegation, but not necessarily so in markets with Cournot competition. It also shows that under strategic delegation with ‘own-performance’-based incentive schemes, adoption occurs earlier (later) in markets with Cournot competition than in markets with Bertrand competition, if the degree of product differentiation is high (low). In contrast, under strategic delegation with ‘relative-performance’-based incentive schemes, adoption dates do not differ across markets with different modes of competition. It also analyses implications of firms' choice over types of managerial incentive schemes on the speed of diffusion of new technology.

Cournot vs. Bertrand under relative performance delegation: Implications of positive and negative network externalities

This paper demonstrates that relative-performance based strategic managerial delegation does not lead to the equivalence of Bertrand and Cournot equilibria in the presence of network externalities, regardless of the strength and type of network externalities — positive or negative. In the presence of positive network externalities, under relative-performance based delegation, Bertrand competition yields lower prices and profits, and higher quantities, consumers surplus and welfare than Cournot competition. On the contrary, these rankings are completely reversed in the presence of negative network externalities. It also discusses the endogenous choice of price or quantity contract under delegation in the presence of network externalities.

Optimal Upstream SOE's Managerial Delegation and Downstream Industrial Policy Under Successive Duopoly

This paper introduces managerial delegation for a state-owned enterprise (SOE) in a successive duopoly model. There are two home firms, one upstream and one downstream, each competing with a respective foreign firm. All firms are private except the home upstream firm which is an SOE with a managerial incentive contract that contains profit and sales elements. The domestic government maximizes social welfare by choosing the optimal managerial contract for the SOE and the optimal industrial policy for the domestic downstream firm. The paper finds that (1) the optimal incentive contract will never be pure profit maximization; (2) if the SOE has a positive weight on its incentive contract, its equilibrium profit margin will be negative; (3) both domestic firms benefit from a lower SOE's profit-incentive weight; and (4) if the foreign input supplier is sufficiently large, the optimal industrial policy is a tax. The paper also finds that, in the linear case, the SOE's profit margin is always negative, the optimal managerial profit weight is determined by all firms' cost parameters, taxing downstream production is optimal under certain demand and cost conditions, and the foreign upstream firm will choose not to engage in a strategic managerial delegation game.

Network Externalities and Strategic Managerial Delegation in Cournot Duopoly: Is There a Prisoners’ Dilemma?

This paper analyzes the implications of network externalities on strategic managerial delegation contracts in a Cournot duopoly. It shows that, in the presence of strong network externalities, firms obtain higher profits in the equilibrium under strategic managerial delegation compared with that under no-delegation. Unlike as in the case of weak or no network externalities, owners of firms do not face a Prisoners’ Dilemma type of situation while deciding incentive schemes – sales-oriented vis-à-vis based on profits only – for managers in the presence of strong network externalities. However, both consumers’ surplus and social welfare are higher in the equilibrium under strategic managerial delegation compared to those under no delegation, irrespective of the strength of network externalities.

Managerial Delegation, Cost Asymmetry and Social Efficiency of Entry

This article examines the welfare implications of entry in oligopolistic markets with separation of management from ownership. In the presence of strategic managerial delegation and cost asymmetry, entry is socially insufficient unless the degree of scale economies is large. This result is in stark contrast to those documented in the extant literature. A key feature of our analysis is that a ‘business stealing’ effect (Mankiw & Whinston, 1986) does not arise for the relatively cost‐efficient entrant under managerial delegation. The policy implication emerging from our analysis suggests that entry should be encouraged in industries with strategic managerial delegation, cost asymmetry and not large‐scale economies.

DELEGATION AND EMISSION TAX IN A DIFFERENTIATED OLIGOPOLY*

This paper examines how product differentiation as well as strategic managerial delegation affects optimal emission tax rate, environmental damage and social welfare, under alternative modes of competition. It shows that, under pure profit maximization, the optimal emission tax rate is not necessarily decreasing in degree of product differentiation. Moreover, the impacts of delegation on the scope for the optimal emission tax rate to be lower for higher degree of product differentiation are very different under alternative modes of competition. Under price (quantity) competition, the equilibrium emission tax rate, environmental damage and social welfare are lower (higher) in the case of delegation.

Strategic managerial delegation and cross-border mergers

The purpose of this paper is to clarify the relationship between the market structure in equilibrium and the most preferred structure with respect to each country’s social welfare and/or total social welfare, when all existing firms can freely merge with each other in an international oligopoly under the segmented market assumption in three cases: the case wherein all the firms are entrepreneurial and the cases wherein they use two different types of managerial delegation contracts. We focus our attention on the coincidence/non-coincidence between the equilibrium market structure (EMS) and the most socially preferred structure with respect to each country’s social welfare and/or total social welfare, as each firm’s production efficiency varies. When each firm’s production efficiency is relatively low, in all the three cases, the EMS coincides with the most socially preferred structure with respect to each country’s social welfare and total social welfare in a large area of the physical trade cost. On the other hand, when each firm’s production efficiency is relatively high, in the cases wherein they use the two different types of managerial delegation contracts, there exists an area of each firm’s production efficiency such that the EMS does not coincide with the most socially preferred structure with respect to each country’s social welfare and total social welfare. Therefore, as each firm’s organizational structure proceeds from entrepreneurial to managerial delegation, a more active merger policy is needed with respect to each country’s social welfare and total social welfare.

Strategic managerial delegation and trade policy

This paper examines the implications of delegation of quantity or price setting power to the managers by the firm owners, for trade policy. Delegation reduces the scale of strategic trade policy in an exporting industry. In an import-competing oligopoly industry, the optimal tariff is less or greater than the standard optimal tariff depending on whether firms compete in quantity or price. A quantitative import restriction is collusive even when firms compete in quantities, and induces the home firm to become less sales-oriented and produce less. Delegation reduces the gains from integration of similar markets across countries.