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Strategic managerial incentives in a two-period Cournot duopoly. (English) Zbl 1168.91364

Summary: This paper examines the nature of optimal managerial incentives in the context of a duopoly marked by competition between the firm’s managers in a dynamic production environment. If the marginal cost of production falls moderately over time or remains unchanged, there exists an equilibrium where one owner requires her manager to maximize profit, whereas the rival-owner requires her manager to maximize sales revenue. The profit-maximizing manager turns his firm into a Stackelberg-leader, while the sales-revenue-maximizing manager turns his firm into a Stackelberg-follower. Further, the profit-maximizing manager may generate a larger firm profit relative to the sales-revenue-maximizing manager.

MSC:

91B24 Microeconomic theory (price theory and economic markets)
91A65 Hierarchical games (including Stackelberg games)
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