Quantity Precommitment and Mixed Duopoly with Price Competition

Abstract

This chapter investigates a mixed duopoly model where a capitalist private firm and a state-owned public firm coexist. The following two-stage game is considered. At stage one, the firms choose whether or not to provide lifetime employment as a strategic device simultaneously and noncooperatively. This irreversible behavior changes the price-competing market environment of stage two. At stage two, the firms set prices simultaneously and noncooperatively. The chapter discusses the equilibrium solution of the mixed market model. As a result of this analysis, we discover that introducing lifetime employment into the model of price-setting mixed duopoly may be beneficial for the state-owned firm.

Keywords: Capitalist private firm, consumer surplus, lifetime employment, mixed duopoly, price competition, quantity precommitment, reaction functions, economic welfare, state-owned public firm, subgame perfection.