Relative-Performance Delegation Destabilizes Upstream Collusion

Relative-Performance Delegation Destabilizes Upstream Collusion

By:

Lee, Jen-Yao; Wang, Leonard F. S.; Sun, Ji

Abstract:

This paper analyzes upstream firms’ collusive sustainability when downstream firms adopt the relative-performance delegation in an infinitely repeated Cournot or Bertrand game. We find that relative-performance delegation makes managers act more aggressive and upstream collusion more difficult to sustain compared to sales-revenue delegation. The driving force is that downstream relative-performance delegation makes more profits for the deviated firm. This result holds regardless of the competition modes.