Delegation in a duopolistic differentiated goods market with Bertrand competition

Abstract

The impact of delegation in a firm has been observed by many modern authors. Vickers(1985), Fershtman and Judd(1987), Sklivas(1987) considered the problem as part of positive economic theory whereas Koray and Sertel(1989) treated it as a regulation problem. We examine a similar problem for a duopolistic dilTerentiated good market with Bertrand competition and lengthen the delegation chain to 5 managers. Our findings show that the firms’ profits are monotonically increasing, i.e. there is a positive incentive to redelegate for each firm. Our natural conjecture is that, in the limit, firms reach collusion non-cooperatively.