Relative Performance Evaluation in an Oligopoly

Wu, Martin G. H.

doi:10.2139/ssrn.1986140

Cited by 2 publications

(1 citation statement)

References 41 publications

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“…Following Aggarwal and Samwick (1999) and Fumas (1992), previous studies have considered the impact of RPEs on firm strategies or social welfare based on a managerial delegation game (e.g., Asseburg & Hofmann, 2010; Chirco et al., 2011; Hamamura & Ramani, 2023; Hattori & Tanaka, 2016; Huang et al., 2020; Matsumura et al., 2013; Miller & Pazgal, 2005; Satoh & Tanaka, 2014; Tanaka, 2014; Wu, 2012; Xu & Matsumura, 2022).…”

Section: Related Literaturementioning

confidence: 99%

The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs

Hamamura,

Ramani

2024

Scottish J Political Eco

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We examine the welfare effects of the endogenous decision and release timing of weight placed on the rival's profits under relative performance evaluation with quantity competition and asymmetric marginal costs. We find that when the advantaged firm decides and releases the weight as the leader, it always chooses a negative weight on relative performance evaluation, whereas the disadvantaged firm may choose a positive or negative weight depending on the degree of product substitution. Furthermore, we demonstrate that while all firms prefer to release weights early, this situation does not improve social welfare in several economic environments.

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Section: Related Literaturementioning

confidence: 99%

The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs

Hamamura,

Ramani

2024

Scottish J Political Eco

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Optimal Risk Trade-Off in Relative Performance Evaluation

2018

Journal of Management Accounting Research

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In this study, I consider a company's optimal use of relative performance evaluation (RPE) in principal/agent relations to filter out common risk. I construct a risk-parity aggregate of the company's peer group to be the sum of the ratios of the common- and idiosyncratic-risk components of the group of peers' outputs, scaled by the variance of the common risk. I demonstrate that this aggregate embodies the peer group's informativeness about the common risk, so it captures precisely the group's innate capability to trade off optimally between the common- and idiosyncratic-risk components of those peers' outputs. The optimal use of RPE therefore entails a partial substitution of the common risk with the peers' idiosyncratic risks. Moreover, the risk-parity aggregate enables us to identify a boundary condition, which helps us rule out ineffective uses of RPE that completely eliminate the common risk, thereby improving the statistical power of a strong-form RPE test. JEL Classifications: J3; M2.

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Relative Performance Evaluation in an Oligopoly

Cited by 2 publications

References 41 publications

The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs

The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs

Optimal Risk Trade-Off in Relative Performance Evaluation

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