Resumen de Spatial competition and the duration of managerial incentive contracts

Francisco Javier Casado Izaga, Juan Carlos Bárcena Ruiz

• We consider a duopoly model of spatial competition in which the owners of the .rms can strategically use two variables: the duration of managerial incentive contracts and the location of the .rms. In equilibrium, one owner chooses a long-term incentive contract for his manager (becoming a leader in incentives), while the other (the follower) chooses short-term contracts. Both .rms are located outside the city boundaries, but the leader locates its .rm closer to the market than the follower and encourages its manager to be less aggressive than the follower's manager. As a result, in contrast to the conventional wisdom, under Bertrand competition the leader obtains higher pro.ts than the follower.