An Economic Theory of Managerial Firms: Strategic Delegation in Oligopoly

246 Pages·2017·4.16 MB·English

by  Luca Lambertini

An Economic Theory of Managerial
Firms
Theseparationbetweenownershipandcontrolhasbecomecommonpracticeover
the last century, in most medium and large firms across the world. Throughout
thetwentiethcentury,thetheoryofthefirmandthetheoryofindustrialorganiza-
tiondevelopedparallelandcomplementaryviewsonmanagerialfirms.Thisbook
offersacomprehensiveexpositionofthisdebate.
Initssurveyofstrategicdelegationinoligopolygames,AnEconomicTheoryof
ManagerialFirmsisabletoofferareinterpretationofarangeofstandardresults
in thelightofthefactthatthecontroloffirmsisgenerallynotinthe handofits
owners.Thetheoreticalmodelsaresupportedbyawealthofreal-worldexamples,
inordertoprovideastudyofstrategicdelegationthatisfarmorein-depththanhas
previouslybeenfoundintheliteratureonindustrialorganization.Inthisvolume,
analysisisextendedinseveraldirectionstocoverapplicationsconcerningtherole
of:managerialfirmsinmixedmarket;collusionandmergers;divisionalizationand
vertical relations;technicalprogress;productdifferentiation;internationaltrade;
environmentalissues;andtheintertemporalgrowthoffirms.
This book is of great interest to those who study industrial economics,
organizationalstudiesandindustrialstudies.
Luca Lambertini is full professor of Economics at the University of Bologna,
Italy. He was previously the Head of the Department of Economics of the
same University and memberof the ExecutiveCommittee of EARIE (European
AssociationforResearchinIndustrialEconomics).
Routledge Studies intheEconomics ofBusiness andIndustry
1. AnEconomicTheoryofManagerialFirms
StrategicDelegationinOligopoly
LucaLambertini
An Economic Theory of
Managerial Firms
Strategic Delegation in Oligopoly
Luca Lambertini
Firstpublished2017
byRoutledge
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©2017LucaLambertini
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AcataloguerecordforthisbookisavailablefromtheBritishLibrary
LibraryofCongressCataloging-in-PublicationData
Names:Lambertini,Luca,author.
Title:Aneconomictheoryofmanagerialfirms:strategicdelegationinoligopoly/LucaLambertini.
Description:Abingdon,Oxon;NewYork,NY:Routledge,2017.|Includesindex.
Identifiers:LCCN2016050415|ISBN9781138658349(hardback)|ISBN9781315620879(ebook)
Subjects:LCSH:Oligopolies.|Industrialorganization(Economictheory)
Classification:LCCHD2757.3.L3592017|DDC338.601–dc23
LCrecordavailableathttps://lccn.loc.gov/2016050415
ISBN:978-1-138-65834-9(hbk)
ISBN:978-1-315-62087-9(ebk)
TypesetinTimesNewRoman
bySunriseSettingLtd.,Brixham,UK
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Contents
Listoffigures x
Preface xi
Acknowledgements xiv
1 Thetheoryofmanagerialfirms:settingthestage 1
1.1 Offirmsandmarkets 2
1.2 U-formvsM-form,andopportunisticbehaviour 2
1.3 Assetspecificity,moralhazardandvertical
integration 4
1.4 Whatdoesafirmmaximize? 5
1.4.1 Thetheoryofthegrowthofthefirm 6
1.5 Agencytheory 7
1.5.1 Moralhazardinteams 10
1.6 Marketcompetitionandincentives 11
2 Strategicdelegationinoligopoly 19
2.1 Salesexpansion 20
2.1.1 Cournotcompetition 20
2.1.2 Bertrandcompetition 27
2.2 Marketshares 32
2.3 Comparativeperformance 34
2.3.1 Cournotcompetition 35
2.3.2 Bertrandcompetitionandthemixedcase 38
2.4 Alleggsinonebasket 39
2.4.1 Outputlevelvscomparativeperformance 39
2.4.2 Marketsharevscomparativeperformance 41
2.4.3 Outputlevelvsmarketshare 44
2.4.4 Thereducedform 45
2.5 Endogenoustiming 46
2.5.1 Managerschoosetiming 47
2.5.2 Ownerschoosetiming 48
viii Contents
2.6 Entrybarriers 51
2.7 Empiricalandexperimentalevidence 52
3 Mixedoligopolies 60
3.1 Strategicdelegationandasymmetricinformation 61
3.2 Strategicdelegationwithoutagencyissues 63
3.3 Delegationandtaxpolicy 67
4 Collusivebehaviourandhorizontalmergers 72
4.1 Stock-basedcompensationandcollusion 72
4.2 Output-basedcompensationandcollusion 76
4.2.1 Extension:partialcollusionwithgrimtriggerstrategies
oroptimalpunishment 80
4.3 Horizontalmergers 83
5 Divisionalizationandverticalrelations 91
5.1 Verticalseparation:supplychainmanagement 93
5.2 Multidivisionalfirms 101
5.2.1 Multidivisionalizationwithmanagers 105
5.2.2 Divisionalizationandmergers 112
6 Innovationandtechnicalprogress 122
6.1 Preliminaries:theprincipal-agentrelationship
withR&D 123
6.2 Thepersistenceofmonopoly 125
6.3 Delegationvsprocessinnovation:atoymodel 127
6.4 Delegationvsprocessinnovation:endogenousR&D 131
6.4.1 Processinnovation 131
6.4.2 Productinnovation 136
6.5 Processinnovationinamanagerializedindustry 139
6.6 Technologylicensing 142
6.7 Makeorbuy? 146
7 Endogenousproductdifferentiation 154
7.1 Verticalorhorizontaldifferentiationwithconvexvariable
costs 155
7.1.1 Profitincentives 155
7.1.2 Managerialincentives 156
7.1.3 Shouldfirmsdelegateproductdesign? 157
7.1.4 Bidimensionalproductdifferentiation 163
7.2 Processinnovationandqualityimprovements 166
7.2.1 Nodelegation 167
7.2.2 Unilateraldelegation 168
Contents ix
7.2.3 Bilateraldelegation 168
7.2.4 Thedelegationdecision 169
8 Tradeandtheenvironment 173
8.1 Internationaltrade 173
8.1.1 Sellingonathirdcountry’smarket:exportrivalry 174
8.1.2 Intraindustrytrade:import-competingindustry 175
8.1.3 Ontheequivalenceoftariffsandquotas 176
8.1.4 Comparativeprofitperformance:expluribusunum 177
8.1.5 Themarketsharecase 177
8.2 Pollutingemissionsandresourceexploitation 179
8.2.1 CSRinmixedoligopolies 179
8.2.2 Managerialincentivesandgreeninnovation 183
8.3 Supplychains,trade,andpollution 186
9 Strategicdelegationindifferentialgames 193
9.1 Elementsofdifferentialgametheory 193
9.1.1 Thestate-controlsystemanditsproperties 195
9.1.2 TheHamilton–Jacobi–Bellmanequation 196
9.1.3 Closed-loopmemorylessinformation 197
9.2 Adynamicmodelofmanagerialfirms’growthàlaPenrose 198
9.3 Capacityaccumulationgames 201
9.3.1 TheSolow–Swangame 201
9.3.2 TheCournot–Ramseygame 204
9.4 R&Dgames 210
9.4.1 Productinnovation 211
9.4.2 Processinnovation 216
9.5 Naturalresourceextraction 218
Index 229