Wage‐rise Contract and Quantity Competition With Profit‐maximizing and Labour‐managed Firms

Abstract

This paper examines the behaviours of a profit-maximizing firm and a labour-managed profitper-worker-maximizing firm in a two-stage quantity-setting model with a wage-rise contract as a strategic commitment. The paper then shows that there exists a unique equilibrium that coincides with the Stackelberg solution where the profit-maximizing firm is the leader and the labour-managed firm is the follower.