Strategic Investment and the Co-existence of Labour-Managed and Profit-Maximising Firms

Hugh M. Neary and David Ulph

Canadian Journal of Economics, 1997, vol. 30, issue 2, 308-28

Abstract: The authors examine firm profitability in mixed duopoly equilibrium with one labor managed (LM) firm and one profit maximizing (PM) firm, and with strategic investment. Conventional wisdom suggests that firms deviating from profit-maximization will suffer forced exit in the long run. The authors reverse this conclusion. In mixed LM-PM duopoly with strategic investment, no equilibrium can have both firms making zero profits, and PM profitability implies LM profitability, but not the converse. Adverse parameter shifts would cause the PM firm to exit first. Empirical evidence is consistent with this prediction of robust market survivability of LM firms.

Date: 1997
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