Strategic Delegation in Price Competition

Werner Güth, Kerstin Pull, Manfred Stadler

Department of Business and Economics, University of Tübingen, Tübingen, Germany.
Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany.

DOI: 10.4236/tel.[phone]                

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 intra- 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.

Keywords

Strategic Delegation; Gency Theory; Evenue Sharing

Conflicts of Interest

The authors declare no conflicts of interest.

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