Organizational structure, strategic delegation and innovation in oligopolistic industries

We endogenize firms’ organizational structures in a homogenous goods duopoly where firms invest in cost-reducing R&D and compete in quantities, and examine their impact on R&D efforts and market performance. Each firm’s owner can either delegate to a manager both market competition and R&D investment decisions (full delegation (FD) strategy) or delegate the market competition decision alone (partial delegation (PD) strategy). We show that when the initial marginal cost is relatively high, universal FD emerges in equilibrium. Otherwise, an asymmetric equilibrium with one owner choosing an FD strategy and the other a PD strategy arises. Finally, universal PD can arise in equilibrium only if the competition is in prices.