Strategic delegation in price competition

Posted by D. Daniel Sokol

Werner Guth (Max Planck), Kerstin Pull (Tubingen) & Manfred Stadler (Tubingen) discuss Strategic delegation in price competition.

ABSTRACT: We study price competition in heterogeneous markets where price decisions are delegated to agents. Principals implement a revenue sharing scheme to which agents react by commonly charging a sales price. The results of our model exemplify the importance of both intrafirm- and interfirm interactions of principals and agents in competition. We show that price delegation can increase or decrease the firms’ surplus depending on the heterogeneity of the market and the number of agents employed by the firms.