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Author: | Wickelgren, A.L. |
Title: | Managerial incentives and the price effects of mergers |
Journal: | Journal of Industrial Economics
2005 : SEP, VOL. 53:3, p. 327-353 |
Index terms: | incentives managers mergers shareholders |
Language: | eng |
Abstract: | This paper shows why managers are not perfect agents for shareholders. When managers of a multi-product firm exert unobservable effort to improve product quality, there is a trade-off between providing adequate effort incentives and ensuring sufficient price-coordination between the product divisions. This makes some intra-firm price competition optimal, explaining why many multi-product firms allow for competition between divisions. Intra-firm price competition can reduce quality-adjusted price, which has important implications for antitrust policy. |
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