Thursday, March 22, 2012
Posted by D. Daniel Sokol
Lisa Bruttel (Professor, Department of Economics, University of Konstanz) and Simeon Schudy (Professor, Department of Economics, University of Konstanz) have written on COMPETITION WITHIN FIRMS.
ABSTRACT: We investigate the role of incentives set by a parent firm for competition among its subsidiaries. In a Cournot experiment, four subsidiaries of the same parent operate in the same market. Parents earn a specific share of the joint profit, and can choose how to distribute the remaining surplus (or loss). Results show that parents allocating profits equally among their subsidiaries reach outcomes close to collusion. However, almost half of the parent firms employ a proportional sharing rule instead. These groups end up with profits around the Cournot level.