Managers compensation and collusive behaviour under Cournot oligopoly

Abstract

The aim of the present paper is to show that the existence of a concrete outside option for …rms'executives can induce, under speci…c circumstances, every …rm to adopt restrictive output practises. In particular, the paper characterizes the conditions for which, under Cournot oligopoly, existing …rms behave more collusively than in a standard Cournot model. It is also shown that room exists for perfect and stable collusive agreements amongst …rms. Other interesting …ndings are also twofold. Firstly, that the equilibrium executives' pay will usually be dependant upon the number of companies initially disposing of the technology and/or of the organizational knowledge required to set up the business. Secondly, that companies' procedures di¢ cult to duplicate can constitute a bene…cial form of competition policy in that they induce the …rms to behave less collusively in the product market.