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Managerial Delegation with Vertical Structure: Linear Input Contract vs. Nash Bargaining

We examine that the bilateral supplier affects the incentive contracts that owners of retailers offer their managers. Thus, we compare the two models: (1) decentralized bargaining between manufacturers and retailers including two-part tariff contract (2) linear input pricing without bargaining. Contrast to previous studies, we find that the owner of retailer chooses no delegation under Cournot competition when offering linear input pricing, which implies that owners do not face a prisoners' dilemma situation and Pareto superior profit is obtained for retailers. Furthermore, in contrast to Scrimitore (2018), decentralized bargaining allows to equalize the equilibrium outcomes in the different delegation structure under both Bertrand and Cournot competition and leads the irrelevant result for the endogenous delegation problem.