Rivalry Restraint as Equilibrium Behavior. Issue 1 (March 2015)

• Record Type: Journal Article
• Authors: Dockner, Engelbert J.; Löffler, Clemens
• Is Part Of: Journal of economics & management strategy. Volume 24:Issue 1(2015)
• Page Start: 189
• Page End: 209
• Publication Date: 2015-03
• Subjects: Economics -- Periodicals; Business -- Periodicals; Management -- Periodicals; Strategic planning -- Periodicals; 330.1
• DOI: 10.1111/jems.12081
• Languages: English
• ISSNs: 1058-6407

Abstract

<abstract abstract-type="main"> <title> <x xml:space="preserve">Abstract</x> </title> <p>Rivalry restraint has received a lot of attention as a theory of profits in recent research on business strategy. Its economic rationale is explained as the consequences of either exogenous or endogenous anticompetitive forces present in different industries. In this paper, we use a dynamic oligopolistic industry model and show that rivalry restraint emerges as equilibrium behavior among firm owners who delegate decisions to managers. In the corresponding two‐stage game, managers choose optimal production rates in a dynamic Cournot market and owners set incentives for managers, acting sequentially rational. Equilibrium incentives correspond to rivalry restraint, that is, managers are less aggressive in the product market with lower outputs and increasing profits for all firms in the industry.</p> </abstract>