Profit-Sharing and the Endogenous Order of Moves in Oligopoly

Abstract

Whether firms move sequentially or simultaneously is one of the most important questions in the oligopoly theory. Forms of firms and/or their remuneration systems influence the decisions. This paper analyzes the effect of profit-sharing on the endogenous order of moves in a wage-setting stage of a unionized duopoly where one adopts profit-sharing while the other does not. It is shown that the two firms do not move simultaneously. In addition, if a fraction of profits going to the union is large, the Stackelberg equilibrium with the profit sharing firm moving first emerges endogenously.

Endogenous timing of managerial delegation contracts in a unionized duopoly

“…There are other works dealing with endogenous timing in vertical structures, even if the timing on managerial incentive contracts, which is the subject of this work, is not investigated. In particular, Takami and Nakamura () analyze how wage determination affects the decision of firms to move first or second in the product market, whereas Din and Sun () study endogenous timing in vertical markets (albeit without labor unions).…”

Profit sharing, labour share and financial structure

“…Another approach isTakami and Nakamura (2012), which considers the endogenous timing in the basically same wage setting duopoly model as ours between the Profit Sharing firm and the conventional Non-Profit-Sharing firm.…”