Monday, September 16, 2013
Posted by D. Daniel Sokol
Trishita Bhattacharjee (Indira Gandhi Institute of Development Research) and Rupayan Pal (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth) address Managerial delegation in monopoly under network effects.
ABSTRACT: This paper examines the possibility of emergence of incentive equilibrium in the case of monopoly, without relying on agency theory based arguments. It shows that, when there is network effect of consumption, it is optimal for a monopolist to offer sales-oriented incentive scheme to her manager. The extent of sales-orientation of the optimal incentive scheme is higher in the case of stronger network effect. It also shows that both the monopolist and consumers are better off under managerial delegation than in case of no delegation, unlike as in the case of usual oligopoly without network effect.