Bargaining over Managerial Contracts in Delegation Games: The Sequential Move Case

This paper examines the bargaining problem between firms' owners and managers over their managerial delegation contracts in a duopolistic market with differentiated-products. Assuming that delegated managers make every managerial decision in the market, we analyze how the managers'' bargaining power affects social welfare and firms'' profits for each case of sequential quantity competition and sequential price competition. We show that the relative increase in the managers'' bargaining power leads to decrease in firms'' profits but improves social welfare in each case, and that this result holds for any case of the degree of product differentiation. This shows that the existing results obtained for the simultaneous move case and a single homogeneous product case are robust in the sequential move cases.