Decisions of Duopoly Firms on Sharing Information on Their Delegation Contracts

• DOI: 10.1007/s11151-019-09732-3
• Publication Date: 2019-10-03T18:09:40Z
• Authors: Kyung Hwan Baik; Dongryul Lee
• Keywords: Unobservable; Delegation; Duopoly; Moral hazard

We study duopolies in which firms—each of which consists of an owner and a manager—have the option of releasing or not to the public their contract information between the owner and the manager. The owner of each firm seeks to maximize her firm’s profits, and designs a compensation scheme for her manager in which the manager’s compensation depends on his performance: a linear combination of the firm’s profits and sales. After accepting contracts, the managers compete in quantities or in prices. As a main result, we show in both quantity-setting and price-setting models that the firms both release their contract information. Then, we compare the outcomes of the observable-contracts case with those of the unobservable-contracts case.