Strategic Delegation in a Multiproduct Mixed Industry

Abstract

We examine strategic delegation in a multiproduct mixed duopoly with nonprofit organization (NPO) and for-profit organization (FPO). We will demonstrate that the nonprofitable mission service can reduce both the interest conflicts between the NPO and FPO owners and those between the NPO owner and self-benefited manager. The profit orientation in the compensation schemes will vary with different relative costs. Although the NPO owner may have a different objective from the FPO owner, they all end up having their managers raise their prices and reducing competition in the profitable market. Moreover, as the regulated price of mission service increases, both firms will charge more for their profitable services, but the owner of NPO could still overcompensate her or his manager, when the indirect impact on increasing the conflict of interest is higher than the direct impact on price.