DUOPOLY WITH EMPLOYEE-CONTROLLED AND PROFIT-MAXIMIZING FIRMS - BERTRAND VS COURNOT COMPETITION

This paper develops a theory of duopolistic competition between an employee-controlled firm that maximizes value-added per worker and a profit-maximizing firm and presents a few general results. First, we study Cournot competition in this setting and compare the resulting equilibrium with the one that obtains when both firms maximize profits. The presence of an employee-controlled firm increases the output and the profits of the other firm, while its own output and profits decrease. An employee-controlled firm can ensure its workers a compensation that is higher than the market wage whenever a profit-maximizing firm, using the same technology, could realize positive profits. Second, we consider a differentiated industry with Bertrand competition. In this case, the presence of an employee-controlled firm increases the prices charged by both firms and the profits of its competitor. Surprisingly, the profits of the employee-controlled firm can also increase. © 1992.