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Vertical externality and strategic delegation
Author(s) -
Park EunSoo
Publication year - 2002
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1051
Subject(s) - upstream (networking) , delegation , downstream (manufacturing) , monopoly , incentive , externality , microeconomics , competition (biology) , economics , outcome (game theory) , nash equilibrium , industrial organization , vertical integration , operations management , management , computer network , ecology , computer science , biology
This paper examines the effects of vertical externality generated by the upstream monopoly on the incentives that owners of competing downstream firms give their managers. It is shown that the introduction of the upstream monopoly may have significant effects on the incentive schemes for the downstream firms' managers. In particular, it is shown that in equilibrium, each owner obtains the simple Nash equilibrium outcome regardless of the mode of competition (quantity or price) in the downstream market. Copyright © 2002 John Wiley & Sons, Ltd.