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- catalog abstract "This paper examines the effect of competition in the product markets on the design of a firm's governance structure. In oligopolies, profits are not just a function of a firm's own actions but also of the actions taken by rivals. Firms therefore behave strategically and commit to actions which elicit the most favorable responses from rivals. It is shown both theoretically and empirically that firms strategically use incentive features of compensation contracts toalter behavior in product markets. When a firm's output market decisions are strategic substitutes (i.e., marginal profits decrease with an increase in the rival's actions) managerial incentives are decreased, while if these decisions are strategic complements (i.e., marginal profits increase with an increase in the rival's actions) managerial incentives are increased. I develop an empirical measure which captures the sensitivity of a firm's marginal profits to changes in its rival's actions. An examination of CEO incentives in the data shows that when decisions are strategic substitutes, CEOs get awarded stock options with lower pay-for-performance incentives, own a smaller percentage of the firm and have a smaller threat of dismissal following bad performance of the firm. On the other hand, when decisions are strategic complements CEOs get higher pay-for-performance incentives from both cash and stock based compensation.".
- catalog contributor b10694671.
- catalog contributor b10694672.
- catalog created "c1998.".
- catalog date "1998".
- catalog date "c1998.".
- catalog dateCopyrighted "c1998.".
- catalog description "Includes bibliographical references (p. 38-40).".
- catalog description "This paper examines the effect of competition in the product markets on the design of a firm's governance structure. In oligopolies, profits are not just a function of a firm's own actions but also of the actions taken by rivals. Firms therefore behave strategically and commit to actions which elicit the most favorable responses from rivals. It is shown both theoretically and empirically that firms strategically use incentive features of compensation contracts toalter behavior in product markets. When a firm's output market decisions are strategic substitutes (i.e., marginal profits decrease with an increase in the rival's actions) managerial incentives are decreased, while if these decisions are strategic complements (i.e., marginal profits increase with an increase in the rival's actions) managerial incentives are increased. I develop an empirical measure which captures the sensitivity of a firm's marginal profits to changes in its rival's actions. An examination of CEO incentives in the data shows that when decisions are strategic substitutes, CEOs get awarded stock options with lower pay-for-performance incentives, own a smaller percentage of the firm and have a smaller threat of dismissal following bad performance of the firm. On the other hand, when decisions are strategic complements CEOs get higher pay-for-performance incentives from both cash and stock based compensation.".
- catalog extent "48 p. :".
- catalog isPartOf "Working paper (Harvard University. Graduate School of Business Administration. Division of Research) ; 98-071.".
- catalog isPartOf "Working paper / Division of Research, Harvard Business School ; 98-071".
- catalog issued "1998".
- catalog issued "c1998.".
- catalog language "eng".
- catalog publisher "[Boston] : Division of Research, Harvard Business School,".
- catalog title "Product market competition and top management compensation / Simi Kedia.".
- catalog type "text".