Competition and the Strategic Choice of Managerial Incentives: The Relative Performance Case

Abstract

Abstract. In this paper we study the role of market competitiveness in a strategic delegation game in which owners delegate output decisions to managers interested in the firm's relative performance. In particular we study how the optimal delegation scheme -i.e. the distortion from pure profit maximization -is affected by market concentration and the elasticity of market demand. We show that these two indexes of market competitiveness do not alter managerial incentives in the same way: while the optimal degree of delegation decreases as the market becomes less concentrated, it increases as demand becomes more elastic.

Options Compensation as a Commitment Mechanism in Oligopoly Competition

“…(), Chirco et al . (), and Jansen et al . () modeled the use of relative performance contracts and market share contracts as commitment mechanisms under Cournot competition.…”

“…Raith (2003) develops theory for how incentives for cost-cutting relate to product market competition. More recently, Manasakis et al (2010), Chirco et al (2011), and Jansen et al (2012) modeled the use of relative performance contracts and market share contracts as commitment mechanisms under Cournot competition. Yu (2014) develops a similar two-stage Cournot model to show that CEO overconfidence can also be a commitment mechanism.…”

Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly

“…3 Manasakis et al (2010) endogenize managerial incentive contracts in a differentiated duopoly and have identified the different effects of the competitiveness in the final good market depending on the configuration of contracts in the industry. Chirco et al (2011) investigate market competitiveness affecting the optimal decision rules in a strategic delegation model, where managers have a relative-performance concern.…”

“…Chirco et al . () investigate market competitiveness affecting the optimal decision rules in a strategic delegation model, where managers have a relative‐performance concern.…”

A note on endogenous competition mode with managerial‐unionized firms

“… Extensions to other types of managerial delegation schemes, such as “relative performance delegation” (e.g., Chirco, Scrimitore, & Colombo, ; Miller & Pazgal, ), are left to the future research.…”