Cooperation and Managerial Delegation in Duopoly Revisited

ABSTRACT This paper shows that the cooperative game with managerial delegation (in both the Cournot and Bertrand settings) and the Bertrand benchmark game (without delegation or cooperation) are equivalent in duopoly. The cooperative solution may be the equilibrium of the game, and this outcome can be beneficial for consumer surplus and welfare when managers face output‐based incentives. Moreover, if product differentiation is sufficiently high, the condition for collusion to be stable over time is the same when the duopolists are price‐setters and strictly profit‐seeking, and when they are either price‐setters or quantity setters, and owners and managers can collude when deciding their respective strategic variable.