With fixed costs of quality improvement, we find that a covered market outcome with an interior solution in the price stage is not a Nash equilibrium. When the degree of consumer heterogeneity is high (low) enough, an uncovered market outcome (a covered market outcome with a corner solution in the price stage) is the only Nash equilibrium. When the degree of consumer heterogeneity is moderate, both of the two market outcomes are Nash equilibria, but an uncovered market outcome yields higher social welfare than a covered market outcome with a corner solution in the price stage.

This paper examines how discriminatory input pricing by an upstream monopolist affects the incentives that owners of downstream duopolists offer their managers. Regardless of the mode of competition (quantity or price), owners of downstream firms induce their managers to be more profit-oriented and to behave less aggressively when the monopolist is allowed to price-discriminate than when he charges a uniform price. If the monopolist price-discriminates, managerial downstream firms always earn more than owner-managed profit-maximizing firms. However, if the monopolist charges a uniform price, managerial downstream firms earn more than profit-maximizing counterparts under price competition and earn less under quantity competition. Copyright © 2009 John Wiley & Sons, Ltd.

This paper examines the noncooperative interactions between two exporting countries and one importing country when all of them are seeking the optimal policies to improve their welfare. Whereas the importing country has the incentive to impose tariffs on the goods coming fi-om the two exporting countries, the export policies chosen by the exporting countries depend on the tariff regime, whether uniform or discriminatory tariffs are used. It is argued that export taxes are chosen by both exporting countries in some cases, and that whereas the importing country prefers a uniform tariff regime, the exporting countries find a discriminatory tariff regime preferable.

This paper investigates the choice of a firm's delegate (either the owner or the manager) bargaining wages and employment with a union under a unionised duopoly. We show that if an owner delegates the task of bargaining to a manager, the owner always compensates the manager for profits by penalising sales, regardless of whether the rival owner delegates or not. Moreover, we show that an owner's decision to delegate the task of bargaining to a manager depends on the incremental benefit of delegating and the cost of hiring a manager. The asymmetric outcome (wherein one owner delegates but the other does not) can occur if there is a sufficiently large disparity of hiring costs between the owners. Finally, we show that the union in an owner-managed firm always earns more than the union in a managerial firm. I . I n t r o d u c t i o nThis paper combines the industrial organisation literature on strategic delegation and the labour literature on wage bargaining to investigate an owner's decision to delegate the task of bargaining to a manager, and the design of a managerial incentive scheme for this task, in a model of unionised duopoly. Our analysis facilitates the study of how managerial incentive contracts interact with labour contracts.Union-firm wage bargaining models traditionally assume that workers are engaged in negotiations with firms pursuing profit maximisation. This assumption can fail to account for the separation of ownership and management in modern corporations and the fact that many business decisions are delegated to managers who are not necessarily pursuing profit maximisation. The issue has been widely examined in the literature on strategic delegation, starting with Vickers (1985), Fershtman andJudd (1987), andSklivas (1987), showing that owners can benefit from delegating decisions to managers in oligopolistic markets. The incentive scheme offered to a manager, which is a weighted sum of profits and sales revenue, serves as a commitment device used by an owner to precommit the manager to a certain action, leading to Stackelberg leadership for the firm in the product market. Specifically, the duopoly model developed by Fershtman and Judd (1987) and Sklivas (1987) (hereafter referred to as the FJS model) shows that owners put a positive (negative) weight on sales revenue in the incentive scheme, committing managers to more (less) aggressive behaviour under Cournot (Bertrand) competition. Several papers have attempted

We have investigated non-cooperative and jointly optimal R&D policies in the framework of Spencer & Brander (1983) in the presence of R&D spillovers. When R&D activities are strategic substitutes and the R&D game exhibits a positive externality, the result of Spencer & Brander (1983) reverses: the non-cooperative policy is a tax while the jointly optimal policy is a subsidy. Moreover, when R&D activities are strategic complements, the usual result of the prisoners' dilemma in the strategic subsidy game does not hold, implying that a welfare intervention is preferable over laissez-faire. When spillovers are sufficiently large, the joint welfare increases with subsidies being higher than those under non-cooperation.R&D spillovers, R&D subsidy/tax, strategic substitutes/complements, externality,