Employee Control and Oligopoly in a Free Market Economy

Helmuth Cremer and Jacques Crémer

Annals of Economics and Statistics, 1994, issue 33, 29-49

Abstract: We study duopolistic markets where a profit-maximizing firm competes with an employee-controlled firm that maximizes value-added per employee. We first study an industry with Cournot competition. We show that the presence of an employee-controlled firm does not affect the equilibrium number of firms, lowers aggregate output, increases price and reduces social welfare. The employee-controlled firm has a smaller equilibrium output than its competitor. For Hotelling type competition in a market with diversified products, we show that equilibrium locations are not affected by employee control, that prices increase and that social welfare decreases. The market share of the employee-controlled firm is lower than that of its competitor. Surprisingly, the profits of both firms can increase when control is transferred from stockholders to employees in one of them. Finally, we show that employees would not want to buy a firm from its owners.

Date: 1994
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Related works:
Working Paper: Employee Control and Oligopoly in a Free Market Economy (1992)
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