Stock-related compensation acid product-market competition

Is show that as long as the stock market has perfect foresight, profits are distributed as dividends, and incentives are paid more than once or are de ferred, stock-related compensation packages are strong incentives for manag ers to support tacit collusive agreements in repeated oligopolies. The stoc k market anticipates the losses from punishment phases and discounts them o n stock prices, reducing mangers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation, making collusion supportable at any discount factor. The r esults hold with managerial contracts of any length.