Essays on product market competition and managerial incentives in oligopoly firms

This thesis is concerned with managerial incentives in oligopoly firms. The work consists of five chapters, each of which is described below.; The first chapter discusses the previous literature and briefly describes the aims of this research.; The second chapter analyzes Cournot firms, each of which is owned by an owner and run by a manager. The owner hires the manager to produce the firm's output. The owner is not able to observe his manager's productivity (adverse selection). The chapter first shows that asymmetric information inside monopoly firm causes output to be lower than profit maximizing monopoly output. Moreover, social welfare is lower than full information welfare of monopoly markets. The chapter then extends the analysis to n Cournot firms and derives firm and industry outputs and analyzes the impact of competition on social welfare. The analysis is done under perfectly correlated productivity levels. Imperfect competition and incomplete information are two sources of welfare loss for society.; The third chapter analyzes oligopoly firms, each of which is owned by an owner and run by a manager. The owner hires the manager to improve the firm's cost-efficiency. The firm's marginal cost may be low or high and, by exerting higher effort levels, the manager increases the likelihood that the firm's marginal cost is low. Information asymmetry inside the firm occurs because the owner is not able to observe his manager's effort level (moral hazard). The chapter studies equilibrium managerial payments in each firm and the impact of competition on symmetric equilibrium effort.; The fourth chapter studies the question why agency relationships are born. This question has received less attention in the principal-agent literature. The paper analyzes a duopoly market in which firms compete in prices. The quality of the good sold may differ between firms. Both firms are owned by an owner who has sufficient funds to finance the operation of the firm. It is assumed that the owner is able to run the firm but that he is not as productive as a professional manager. The game starts when owners decide whether they hire managers or run their firms themselves. If the owners decide not to hire managers, they produce quality and set prices for goods the firms are selling. If the owners hire managers, they first select payment schemes for their managers, after which the managers produce qualities and select prices for the goods sold by the firms.; The fifth chapter is complementary to the fourth, which analyzes price competition between firms without explicitly taking into account the individual rationality constraints of consumers. (Abstract shortened by UMI.)...