Quantity-setting games with lifetime employment contracts as a strategic commitment

Abstract

This paper considers lifetime employment contracts asa strategic commitment and examines the respectiveequilibrium outcomes of the two cases of a quantity-setting duopoly game with substitute goods and a quantity-setting duopoly game with complementary goods. First, in the quantity-setting game with substitute goods, we find that there is an equilibrium in which both the firms adopt lifetime employment. Next, in the quantity-setting game withcomplementary goods, we find that there is an equilibrium in which at least one firm adopts lifetime employment, and that lifetime employment is beneficial for both firms.

JEL classification: C72, D21, L13