Strategic delegation and tariff protection with network externalities

In the presence of network externalities, we examine the endogenous delegation structure in an import-competing market with import tariff under Bertrand competition. We show that (i) with strong network externalities, choosing delegation for home and foreign firms is a dominant strategy, which implies that the managerial delegation for output expansion is socially desirable; (ii) with weak (intermediate) network externalities, home firm chooses delegation (no delegation) but foreign firm chooses no delegation (delegation) in equilibrium; Thus, delegation to expand output of home and foreign firms is a more profitable choice than no delegation if the strength of network externalities is sufficiently large.