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Published July 2020 | Submitted
Journal Article Open

Executive compensation and competitive pressure in the product market: How does firm entry shape managerial incentives?


Motivated by empirical evidence, we develop an incentive contracting model under oligopolistic competition to study how incumbent firms adjust managerial incentives following deregulation policies that enhance competition. We show that firms elicit higher managerial effort by offering stronger incentives as an optimal response to entry, as long as incumbent firms act as production leaders. Our model draws a link between an industry-specific feature, the time needed to build production capacity, and the effect that product market competition has on executive compensation. We offer novel testable implications regarding how this industry-specific feature shapes the incentive structure of executive pay.

Additional Information

© 2020 Elsevier B.V. Received 26 July 2019, Revised 6 March 2020, Accepted 6 March 2020, Available online 31 March 2020. We are grateful to Luis Corchón (the editor) and the anonymous referees for insightful comments that helped improve the paper. We thank Archishman Chakraborty, Enrique Garza, Sonia Di Giannatale, Sergio Montero, Luciana Moscoso, Arijit Mukherjee, Kostas Serfes, Matt Shum and Leeat Yariv for helpful suggestions.

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August 22, 2023
August 22, 2023