Strategic Delegation and Market Competitiveness

This paper examines the determinants of the degree of strategic delegation in a quantity setting framework. The sub-game perfect equilibrium degree of strategic delegation is derived as a function of the two key parameters that define market competitiveness in a homogeneous product set-up, i.e. the price-elasticity of market demand and the number of firms. With respect to both these parameters we find that their relationship with the degree of strategic delegation is not necessarily monotone. Indeed, for an inverse relation between strategic delegation and market competitiveness to arise, the initial value of the Lerner index must be sufficiently low.