SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

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

JEL-codes: D43; G30; J33; L13; L21

39 pages, First version: November 1996. Revised: December 1999. Earlier revisions: April 27, 1998, September 7, 1998, November 11, 1998, November 29, 1998.

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