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Strategic Delegation Improves Cartel Stability, Martijn Han
Strategic Delegation Improves Cartel Stability, Martijn Han
Martijn A. Han
Fershtman and Judd (1987) and Sklivas (1987) show that strategic delegation reduces firm profits in the one-shot Cournot game. Allowing for infinitely repeated interaction, strategic delegation can increase firm profits as it improves cartel stability.
Short-Term Managerial Contracts And Cartels, Martijn Han
Short-Term Managerial Contracts And Cartels, Martijn Han
Martijn A. Han
This paper shows how a series of commonly observed short-term CEO employment contracts can improve cartel stability compared to a long-term employment contract. When a manager's short-term appointment is renewed if and only if the firm hits a certain profit target, then (i) defection from collusion results in superior firm performance, thus reducing the chance of being fired, while (ii) future punishment results in inferior firm performance, thus increasing the chance of being fired in the future. The introduction of this re-employment tradeoff intertwines with the usual monetary tradeoff and can improve cartel stability. Studying the impact of fixed versus …