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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 139:
Ownership, Control, and Collusion

Giancarlo Spagnolo

Abstract: The paper addresses the effects of the separation of ownership and control on long-run competition in oligopolies. It finds that when managers have the preference for smooth time-paths of profits revealed by the evidence on "income smoothing," manager-led firms can sustain any collusive agreement at lower discount factors than owner-led ones. Most common managerial incentives - "low-powered" schemes with monetary bonuses and/or incumbency rents - make collusion supportable at any discount factor. When managers are in control, "price wars during booms" need not occur: the most collusive price tends to be pro-cyclical.

Keywords: CEO compensation; delegation; collusion; oligopoly; managerial incentives; income smoothing; incumbency rents; ownership and control; governance; (follow links to similar papers)

JEL-Codes: D43; G30; J33; L13; L21; (follow links to similar papers)

39 pages, November 1996, Revised December 1999

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