BARGAINING OVER MANAGERIAL DELEGATION CONTRACTS AND MERGER INCENTIVES WITH ASYMMETRIC COSTS

In this paper, we examine how managerial delegation contracts within each firm affect the correspondence between the equilibrium ownership structure and the most socially preferred ownership structure. We consider the disclosure of managerial delegation contracts by studying the bargaining over the relative weightage of each firm's sales in a sales delegation contract between an owner and a manager under a model of endogenous merger formation in a three-firm asymmetric Cournot industry. We show that such a bargaining may reduce the requirement of an antitrust policy, since the equilibrium ownership structure can coincide with the most socially preferred ownership structure.