The co-determination decision game with consumption externalities

Luca Gori () and Luciano Fanti

Theory and Decision, 2024, vol. 97, issue 2, No 2, 219-259

Abstract: Abstract This work aims to investigate the effects of co-determination in a game-theoretic setting by considering network externalities in consumption. The received theoretical literature, so far focused only on standard (non-network) industries, showed that co-determination might emerge as the sub-game perfect Nash equilibrium (SPNE) of a non-cooperative Cournot duopoly, but this outcome generates a prisoner’s dilemma. The present research shows that (positive) network externalities may solve the prisoner’s dilemma and let co-determination become a Pareto-efficient SPNE with homogeneous or heterogeneous products. In a network industry, co-determination becomes a Pareto-superior institution for society, as firms, consumers and workers are better off than under profit maximisation. These results hold for exogenous (homogeneous and heterogeneous) co-determination and endogenous co-determination.

Keywords: Co-determination; Network externalities; Quantity competition (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11238-023-09972-6

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