Strategic incentives for market share

Oct 2005 | 248

Authors: Robert Ritz

Market share objectives are prominent in many industries, especially where managers pay much attention to league table rankings. This paper explores the strategic rationale for giving managers incentives based on market share in an oligopoly competing in strategic substitutes. Moreover, the paper discusses evidence on executive compensation practice in the automotive and investment banking industries. As predicted by the theory, firms in both industries use explicit contractual incentives based on market share. The profitability squeeze in the US car industry due to aggressive buyer discount programs can thus be understood as a consequence of prevailing management incentives.

JEL Codes: D21, D43, G24, J33, L62

Keywords: Strategic Delegation, Market Share, Executive Compensation, League Tables

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