Delegation in a duopolistic differentiated goods market with Cournot competition

Abstract

We consider the impact of delegation in a Cournotic duopoly with differentiated goods upon the firms’ profit maximization behavior. In an oligopoly, delegation in each firm can be modeled through a specific non-cooperative game. Delegation games in a differentiated goods market with affine demand are studied within the Cournot competition concept where redelegation is permitted in a symmetric duopoly. The following results are demonstrated: The maximand delegated by each primary delegator, i.e. owner of each firm, converges in monotonically decreasing fashion to the true profit function in the absence of delegation costs, and total industry output at the Cournot equilibrium converges in monotonically increasing fashion to some output level. Welfare changes due to redelegation are also considered.