TITLE:
Profit-Sharing and the Endogenous Order of Moves in Oligopoly
AUTHORS:
Hiroyuki Takami, Tamotsu Nakamura
KEYWORDS:
Profit-Sharing; Endogenous Timing; Observable Delay Game
JOURNAL NAME:
Theoretical Economics Letters,
Vol.2 No.2,
May
23,
2012
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.