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Caterina Colombo, Alessandra Chirco and Marcella Scrimitore
''Strategic delegation and market competitiveness''
( 2009, Vol. 29 No.3 )
Within a strategic delegation model, this paper examines in a quantity setting oligopoly framework the determinants of the degree of strategic delegation - the latter being defined as the extent of the departure from pure profit maximization. The sub-game perfect equilibrium degree of strategic delegation is derived as a function of the two key parameters which determine market competitiveness in a homogeneous product set-up, i.e., the price-elasticity of market demand and the number of firms. With respect to both these parameters we find that their relationship with the degree of delegation is not necessarily monotone. Indeed, for an increase in elasticity or a reduction in market concentration to reduce strategic delegation, these determinants of the Lerner index of monopoly power must satisfy restrictions which guarantee that the initial market environment is sufficiently competitive.
Keywords: Strategic delegation, quantity competition, constant price-elasticity of demand
JEL: L1 - Market Structure, Firm Strategy, and Market Performance: General
L2 - Firm Objectives, Organization, and Behavior: General
Manuscript Received : Jan 27 2009 Manuscript Accepted : Jul 20 2009

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