Managerial Delegation with Quality Differentiation

This paper analyzes the endogenous choice of delegation with two firms producing goods of different qualities. We find that an asymmetric delegation structure emerges as the high-quality firm chooses to delegate and low-quality firm chooses non delegation contract under Cournot competition. Even with introducing quality asymmetry under Bertrand competition, the canonical case occurs with both firms choosing delegation. Contrary to previous results in delegation, in each equilibrium, social welfare, producer and consumer surpluses under Bertrand competition are always greater than those under Cournot competition