Relative-performance delegation destabilizes upstream collusion

Lee, Jen-Yao and Wang, Leonard F. S. and Sun, Ji (2022): 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 act more aggressive and upstream collusion more difficult to sustain compared to sales-revenue delegation. The driving force is that downstream relative-performance delegation makes more profits for the deviated firm. This result holds regardless of the competition modes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Relative-performance delegation; upstream collusion; vertically related market; competition modes
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm

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