STRATEGIC INVESTMENT IN A NEW MIXED MARKET WITH LABOR-MANAGED AND PROFIT-MAXIMIZING FIRMS

This paper examines a continuous-time mixed model of the strategic investment decisions of a labor-managed income-per-worker-maximizing firm and a profit-maximizing firm in a new mixed market and constructs a set of perfect equilibria of the continuous-time mixed model. The paper shows that there exists a particular equilibrium in which neither firm invests to its steady-state reaction curve. The paper also finds that the existence of the particular equilibrium depends on each firm's being able to respond quickly to its rival's investment and that the particular equilibrium is profitable for each firm.