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

Abstract

This paper investigates an international mixed duopoly market in which a state-owned firm coexists with a foreign labour-managed firm. Both firms are allowed to offer lifetime employment as a strategic commitment. The following timing of actions is considered. First, firms decide simultaneously and non-cooperatively whether to offer lifetime employment. If a firm offers 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 study traces the firms' reaction functions in the mixed duopoly model with lifetime employment.