Lifetime Employment and a Mixed Duopoly with a Foreign Labour-Managed Firm

Abstract

This chapter investigates an international mixed duopoly market in which a state-owned firm coexists with a foreign labour-managed firm. The following timing of actions is considered. First, firms decide simultaneously and non-cooperatively whether to use lifetime employment as a strategic commitment device. If a firm provides lifetime employment, then it chooses an output level and enters into a lifetime employment contract with the number of workers necessary to achieve the output level. Second, firms choose actual outputs simultaneously and non-cooperatively. This chapter traces the firms’ reaction functions in the mixed duopoly model with lifetime employment. Generally, duopoly reaction functions intersect only once, which yields the stable equilibrium solution. However, this chapter shows that there may be multiple stable Cournot solutions in the international mixed duopoly model.

Keywords: Cournot model, economic welfare, foreign labour-managed firm, income per worker, lifetime employment, mixed duopoly, reaction functions, stable solutions, state-owned firm, strategic commitment.