Munich Personal RePEc Archive

Relative-performance delegation destabilizes upstream collusion

Lee, Jen-Yao and Wang, Leonard F. S. and Sun, Ji (2022): Relative-performance delegation destabilizes upstream collusion.

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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.

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