Strategic delegation of responsibility in competing firms

This paper investigates the strategic impact of organizational design on product market competition. In a duopoly model of horizontal and vertical product differentiation, each firm's manager can impose a product location, or delegate responsibility to select product location to his subordinate. The task of a subordinate is to develop and produce the good. Quality is determined by his effort level, which depends on his private benefits. The managers compete on a product market by selling the goods produced by their subordinates. Conditions for existence of equilibria are derived, and implications for management strategy are discussed