Common Ownership and Endogenous Managerial Delegation in a Mixed Oligopoly

Abstract This study considers common ownership among public and private firms in a mixed oligopoly market and examines an endogenous choice game of managerial delegation contracts. We find two asymmetric delegation equilibria: (i) when common ownership is low, the public firm does not delegate while the two private firms do; and (ii) when common ownership is high, the public firm delegates while only one private firm delegates. We also identify a symmetric delegation equilibrium where (iii) all firms delegate in intermediate cases. We demonstrate that when common ownership is high enough, an asymmetric delegation equilibrium may solve the prisoner’s dilemma problem between the private firms, leading to a reduction in social welfare. We further discuss policy implications for public firm management, such as privatization policies, welfare-oriented delegation contracts, and non-public offerings in the stock market.