STRATEGIC INVESTMENT IN A LABOUR-MANAGED DUOPOLY

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-8586.2009.00321.x Byline: Yoshinari Miyamoto (*) Keywords: capital commitment; homothetic production technology; labour-managed firm; reaction functions Abstract: ABSTRACT Developing a Cournot two-stage game model with strategic capital interaction, we compare two different kinds of equilibrium in a labour-managed (LM) duopoly. An LM firm's reaction function is negatively sloped when capital and output are simultaneously determined, while the slope of its reaction function in the second stage changes in sign depending on the magnitude of its labour-expansion elasticity. Hence, whether the LM firms employ more capital and produce greater output at the equilibria in the two-stage game model than at the equilibria resulting from the simultaneous selection of capital and output depends on the magnitude of their labour-expansion elasticity. Author Affiliation: (*)Faculty of Economics, Osaka City University, Osaka, Japan Article note: Correspondence: Faculty of Economics, Osaka City University, 3-3-138 Sugimoto, Sumiyoshi-ku, Osaka 558-8585, Japan. Tel: +81-6-6605-2251; Fax: +81-6-6605-3066; Email: yoshinari_miyamoto@nifty.com. Previous versions of this paper were presented at the Annual Meeting of the Japanese Economic Association at Chuo University, and seminars at Osaka City University, the University of Warwick, Fudan University, Chonnam National University, the University of Tokyo and Okayama University. The author is grateful to S. Haruna, N.J. Ireland, S.-H. Lee, T. Nakajima, seminar participants and anonymous referees for their valuable comments. The usual disclaimer applies.