Managers Compensation and Collusive Behaviour under Cournot Oligopoly
CORE Discussion Paper, 2/98, Université Catholique de Louvain.
16 Pages Posted: 28 Jun 2011 Last revised: 30 Jun 2011
There are 2 versions of this paper
Managers Compensation and Collusive Behaviour under Cournot Oligopoly
Managers Compensation and Collusive Behaviour Under Cournot Oligopoly
Date Written: December 1, 1998
Abstract
The aim of the present paper is to show that the existence of a concrete outside option for firms' executives can induce, under specific circumstances, every firm to adopt restrictive output practices. In particular, the paper characterizes the conditions for which, under Cournot oligopoly, existing firms behave more collusively than in a standard Cournot model. It is also shown that room exists for perfect and stable collusive agreements amongst firms. Other interesting findings are also twofold. Firstly, that the equilibrium executives' pay will usually be dependent upon the number of companies initially disposing of the technology and/or of the organizational knowledge required to set up the business. Secondly, that companies' procedures difficult to duplicate can constitute a beneficial form of competition policy in that they induce the firms to behave less collusively in the product market.
Keywords: manager compensation, CEOs, outside option, oligopoly, collusion
JEL Classification: D21, D31, D43
Suggested Citation: Suggested Citation
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