A labor-managed Bertrand oligopoly game with lifetime employment as a strategic commitment

Ohnishi, Kazuhiro (2024): A labor-managed Bertrand oligopoly game with lifetime employment as a strategic commitment.

Abstract

This paper explores a price-setting oligopoly game where labor-managed firms have the option to provide lifetime employment as a strategic commitment. The game unfolds in two stages. In the first stage, each firm independently and simultaneously decides whether to provide lifetime employment as a strategic commitment. If a firm provides lifetime employment, then it chooses an output level and establishes a lifetime employment agreement with the required number of employees to reach the output level. In the second stage, each firm independently and simultaneously selects a price level to maximize its objective function value. At the conclusion of the second stage, the market opens, and each firm sells at its own price. The paper delves into the equilibrium of the labor-managed Bertrand oligopoly game. The analysis reveals that the equilibrium aligns with the Bertrand solution when no lifetime employment is offered. Consequently, the paper concludes that using lifetime employment as a strategic commitment device is not advantageous for labor-managed firms in the price-setting competition.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labor-managed firm; Lifetime employment; Price-setting model; Substitute goods
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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