Downstream competition and upstream labor market matching

Bo Chen ()
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Bo Chen: Shenzhen University

International Journal of Game Theory, 2019, vol. 48, issue 4, No 3, 1055-1085

Abstract: Abstract This study investigates how externalities from downstream competition shape sorting in upstream labor markets. I model this as a two-stage game: A first stage of simultaneous one-to-one matching between firms and managers and a second stage of Cournot competition among matched pairs. If a firm’s technology and human capital are strategic complements, it is rational for each firm-manager pair to expect that the remaining agents will form a positive assortative matching (PAM), and the PAM on the grand market is a stable matching under rational expectations. The PAM remains stable even when they are strategic substitutes but the substitutive effect is moderate. However, if the substitutive effect is sufficiently strong, a negative assortative matching is stable. Social welfare induced by stable matchings is discussed.

Keywords: Matching; Assignment; Externalities; Cournot competition; Labor market; Sorting (search for similar items in EconPapers)
JEL-codes: C71 C78 D43 D47 D62 L13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00182-019-00690-4

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