Strategic delegation in a sequential model with multiple stages

Details Strategic delegation in a sequential model with multiple stages Strategic delegation in a sequential model with multiple stages

2011-07-16

arxiv.org/abs/1107.3198v2

Computer Science

Computer Science and Game Theory

To appear in International Game Theory Review (IGTR), Vol. 13, No. 3 (2011) 1-12

Scientific paper

We analyze strategic delegation in a Stackelberg model with an arbitrary number, n, of firms. We show that the n-1 last movers delegate their production decisions to managers whereas the first mover does not. Equilibrium incentive rates are increasing in the order with which managers select quantities. Letting u_i^* denote the equilibrium payoff of the firm whose manager moves in the i-th place, we show that u_n^*>u_{n-1}^*>...>u_2^*>u_1^*. We also compare the delegation outcome of our game with that of a Cournot oligopoly and show that the late (early) moving firms choose higher (lower) incentive rates than the Cournot firms.

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