Does the Team Manager Raise the Profit‐Sharing Rate in Team Production and Product Market Competition?

An incentive design is an important system to manage the organization in management practice. In the previous management study, several researchers shed light on team performance evaluation under a specific incentive system. In this study, assuming the quantity competition in the product market, we consider the effect of team efforts under a hierarchical team to examine the effect of internal management on a firm's strategy. In particular, we focus on manager‐determined share in the internal team under profit sharing as an incentive system because profit sharing can induce players to enhance their efforts. From our analysis, we find that when the manager in the team is more efficient than the staff, the manager shares a large profit with the staff to incentivize the staff's large effort. Our result not only provides the relationship between internal team production and product market competition but also suggests the incentive design of the team.