Managerial Incentives, Innovation and Product Market Competition PDF Download

Author: Zhentang Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 20

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Author: Klaus M. Schmidt
Publisher:
ISBN:
Category : Incentives in industry
Languages : en
Pages : 34

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Author: Giancarlo Spagnolo
Publisher:
ISBN: 9789172585003
Category : Competition
Languages : en
Pages : 170

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Author: Erlend Walter Nier
Publisher:
ISBN:
Category :
Languages : en
Pages : 330

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Author: John Simpson
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
Our paper contributes to the literature on the relationship between innovation and market power by considering how changes in the intensity of product market competition affect innovation when managerial compensation is a linear function of firm profits. Changes in the intensity of product market competition affect both the return from innovation and the cost of inducing managers to innovate. Several recent papers account for both the returns-to-investment effect and the agency-cost effect in analyzing the effect of additional product market competition on incentives to innovate (see e.g., Schmidt (1997), Raith (2003), and Piccolo, D'Amato, and Martina (2008)). Our model differs from these papers in the type of contract that we assume firms can use to induce innovation. With linear profit-sharing contracts, the cost of a non-drastic innovation declines as product market competition increases because the increment gained from innovation becomes a larger fraction of the total profit. We argue that this decline in the cost of attaining innovation as competition increases means that competition will often lead to more innovation even in models where the returns to innovation otherwise would fall as competition increases.

Author: Federal Trade Commission
Publisher:
ISBN: 9781502493293
Category :
Languages : en
Pages : 30

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Book Description
This book contributes to the literature on the relationship between innovation and market power by considering how changes in the intensity of product market competition affect innovation when managerial compensation is a linear function of firm profits. Changes in the intensity of product market competition affect both the return from innovation and the cost of inducing managers to innovate. Several recent accounts call for both the returns-to-investment effect and the agency-cost effect in analyzing the effect of additional product market competition on incentives to innovate (see e.g., Schmidt (1997), Raith (2003), and Piccolo, D'Amato, and Martina (2008)). This book differs from these accounts in the type of contract that we assume firms can use to induce innovation. With linear profit-sharing contracts, the cost of a non-drastic innovation declines as product market competition increases because the increment gained from innovation becomes a larger fraction of the total profit. The book argues that this decline in the cost of attaining innovation as competition increases means that competition will often lead to more innovation even in models where the returns to innovation otherwise would fall as competition increases.

Author: Michael L. Lemmon
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
This paper examines the strategic use of managerial compensation in an environment where a firm invests in projects which, if successful, can provide a competitive advantage over rival firms in the final product market. In particular, I study the interaction between managerial compensation policy and the investment strategies of competing firms in a model where the future stochastic payoffs from investment can depend on the firms' own actions as well as the actions taken by rivals. Examples of investments of this type include the development of new products/processes (e.g., expenditures on research and development (Ramp;D)), the expansion of production capacity, and advertising and marketing campaigns aimed at increasing the firm's market share at the expense of rivals. It is shown that the strategic interaction between firms will generally result in overinvestment in innovation relative to a benchmark case in which compensation policy is not used in a strategic fashion.

Author:
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ISBN:
Category :
Languages : en
Pages :

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This paper describes R & D competition between a managerial firm and an entrepreneurial one, in a Cournot market. It is shown that a manager interested in output expansion exerts higher R & D efforts, yielding productive efficiency as compared to the performance of a strictly profit-seeking firm. This may ultimately yield monopoly power for the managerial firm, if technological spillovers in the industry are low enough.

Author: Evangelia Chalioti
Publisher:
ISBN:
Category :
Languages : en
Pages : 22

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Book Description
We consider a principal-agent model to provide a general analysis of how risk affects incentives of firms who invest in cost-reducing R&D and compete in the product market. We specify the conditions under which higher risk reduces incentives of all firms. We also examine the conditions under which an increase in risk may trigger opposite responses of rivals in the same industry: some firms will strengthen while other firms will weaken the incentives provided to their agents. This result holds regardless of the mode of competition in the product market, Cournot or Bertrand, as long as the rivals' R&D decisions are strategic substitutes. It can generate new empirical implications and can provide an explanation for the lack of strong empirical support in the literature for a negative relationship between risk and incentives. We also discuss policy implications regarding the effect of risk on the incentives to innovate and welfare.

Author: Michael Raith
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
This paper examines how the degree of competition among firms in an industry affects the optimal incentives that firms provide to their managers. A central assumption is that there is free entry and exit in the industry, which implies that changes in the nature of competition lead to changes in the equilibrium market structure. The main result is that as the intensity of product market competition increases, principals unambiguously provide stronger incentives to their agents to reduce costs, and hence agents work harder. At the same time, more intense competition also leads to a higher volatility of both firm-level profits and managers' compensation. Consequently, managers' incentives are positively correlated with firm-level risk, consistent with empirical evidence.