Managerial Bonus Systems in a Differentiated Duopoly: A Comment

Authors


Maastricht University, School of Business and Economics, Department of Quantitative Economics, PO Box 616, 6200 MD Maastricht, The Netherlands. E-mail: m.jansen@maastrichtuniversity.nl

Abstract

A differentiated Cournot duopoly is considered where firm owners delegate the output decision to a manager, who is rewarded on the basis of his performance. If this performance is measured in terms of (i) pure profits, (ii) a combination of profits and sales, (iii) a combination of profits and market share or (iv) relative profits, the latter option strictly dominates the others if the products are perfect substitutes. Recently it was claimed that this result does not hold for all levels of product substitutability. In this comment, we show however that this result is robust against the introduction of product differentiation. Copyright © 2011 John Wiley & Sons, Ltd.

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