Equilibrium Incentives in Oligopoly: Corrigendum

Fershtman, Chaim; Judd, Kenneth L.

doi:10.1257/aer.96.4.1367

Cited by 359 publications

(435 citation statements)

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“…The agent's payment depends on a linear combination of the firm's profit and returns. The same assumption has been made by Fershtmann/Judd (1987). It is the most striking result of these two papers that it optimal for principals to offers rewards which are contingent on a linear combination of profit and returns.…”

Section: Related Literaturementioning

confidence: 84%

Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies

Kirstein

2007

SSRN Journal

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The paper demonstrates that the inherent instability of Cournot cartels can be overcome by collective wage agreements if these agreements are legally enforceable. The parties have to agree upon linear contracts with minimum variable and fixed wages.Beyond its relevance for strategic management, this insight has an implication for economic policy: competition authorities should observe collective wage agreements for their potential collusive effect on product markets. Moreover, the model offers a new explanation for the "fixed wage puzzle", i.e., the observation that firms pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.

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Section: Related Literaturementioning

confidence: 84%

Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies

Kirstein

2007

SSRN Journal

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“…The results presented in this paper can also be compared to the well known (and opposite) result [Vickers (1985), Fershtman and Judd (1987), Sklivas (1987)] that under Cournot oligopoly the presence of managers'incentives related to sales can induce each company to behave less collusively than simple entrepreneurial …rms (i.e., which managed by just the owner).…”

Section: Introductionmentioning

confidence: 67%

“…The solution concept used to solve the game is a standard subgame Nash equilibrium. 3 An equilibrium of the game is thus a vector of Nash equilibrium quantities y 1 (v (n + k)) ; y 2 (v (n + k)) ; :::; y n+k (v (n + k)) , where v is every manager's equilibrium remuneration and k is the number of new entrants that have entered the market in equilibrium.…”

Section: The Structure Of the Modelmentioning

confidence: 99%

Managers compensation and collusive behaviour under Cournot oligopoly

Marco

2013

ams

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The aim of the present paper is to show that the existence of a concrete outside option for …rms'executives can induce, under speci…c circumstances, every …rm to adopt restrictive output practises. In particular, the paper characterizes the conditions for which, under Cournot oligopoly, existing …rms behave more collusively than in a standard Cournot model. It is also shown that room exists for perfect and stable collusive agreements amongst …rms. Other interesting …ndings are also twofold. Firstly, that the equilibrium executives' pay will usually be dependant upon the number of companies initially disposing of the technology and/or of the organizational knowledge required to set up the business. Secondly, that companies' procedures di¢ cult to duplicate can constitute a bene…cial form of competition policy in that they induce the …rms to behave less collusively in the product market.

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“…Delegation, therefore, substitutes for a formal incentive contract. 12 The preferred agent values quality more, the more severe the quality e¤ects of cost reductions are. The preferred agent also values quality more, when is higher.…”

Section: Delegation Under Mandatory Inhouse Provisionmentioning

confidence: 99%