Stakeholders’ relationships and product market competition

Nicolas Le Pape and Yongying Wang ()

Applied Economics, 2018, vol. 50, issue 36, 3885-3898

Abstract: In this article, we study the relationships between main stakeholders (shareholders, consumers and employees) when firms are consumer oriented (CO) in the sense of caring about consumers’ interests in the objective function. We let these firms first bargain with labour union over their employees’ wages and then compete either in the quantity space (Cournot competition) or in the price space (Bertrand competition). Our model shows that taking care of the consumers’ interests when determining product market strategies may reverse the traditional ranking between Cournot and Bertrand equilibria. This implies that if shareholders in a CO firm can choose either a quantity or a price strategy, they will surprisingly choose the latter. Moreover, we show that the conflicting interests between main stakeholders are attenuated under Bertrand competition compared to Cournot competition.

Date: 2018
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DOI: 10.1080/00036846.2018.1430342

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