The Profitability of Managerial Delegation with Endogenous Locations

Research on managerial delegation typically suggests that firms in a Cournot duopoly compete more aggressively in the product market post-delegation, causing their profits to decline. This paper investigates the profitability of delegation by incorporating a sales-delegation strategy into a spatial barbell model, where consumers are asymmetrically distributed at the two endpoints of a line segment. We find that the firm located closer to the more populated market may benefit from delegation. Notably, this occurs when the locational equilibrium shifts from agglomeration to separation following delegation. Although the firms compete more intensely under delegation, social welfare decreases when the locational equilibrium changes from separation to agglomeration and the transport rate is sufficiently high.