Sharing managerial contract information in a vertically related market

Abstract

Recent research shows that in duopolies with strategic delegation, firm owners have an incentive to always share information about managerial compensation contracts. We study how sharing of contract information is affected by the presence of a supplier. We find that under quantity competition, a partial information-sharing equilibrium may occur. Firms that share contract information punish their managers for sales to soften supplier pricing. Mandating information sharing increases total welfare but decreases consumer surplus. Under price competition, firms always want to share managerial contract information. Finally, firm profits can be higher under price competition than under quantity competition.