Relative-Performance Delegation destabilizes Upstream Collusion

Abstract

This paper analyzes upstream firms’ collusive sustainability when downstream firms adopt the relative-performance delegation in an infinitely repeated Cournot or Bertrand game. We find that relative-performance delegation makes managers acting more aggressive and that leads to more difficult for upstream collusion to be sustained comparing with sales-revenue delegation regardless of the competition modes. The driving force behind our result is that downstream relative-performance delegation decreases input price, while it makes more profit for deviated firm.JEL classification: D21; D43; L13; L21