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Equilibrium Incentives in Oligopoly
Chaim Fershtman and Kenneth L. Judd
The American Economic Review
Vol. 77, No. 5 (Dec., 1987), pp. 927-940
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1810218
Page Count: 14
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We examine the incentives that owners of competing firms give their managers. We show that, in equilibrium, each manager will be paid in excess of his decision's marginal profit in a Cournot-quantity game, but paid less than the marginal profit in a price game. In the Cournot case, deviations from profit maximization are reduced by ex ante cost uncertainty and increased by correlation in the firms' costs.
The American Economic Review © 1987 American Economic Association