Extended oligopolies with contingent workforce

In the oligopoly literature, the introduction of modified cost functions has added reality into the classical analysis. In particular, some recent contributions analyzed oligopoly dynamics when considering production adjustment costs. Although this is a step in building more realistic models, adjustment costs may be different depending on the adjustment direction. In fact, when quantity decreases, firms may decide to lay off workers; by contrast, when quantity increases, new workers need to be hired and this entails searching and selection costs. In this paper, dynamic single-product oligopolies without product differentiation are first examined and then we study how this dynamic is affected by the additional adjustment costs. The resulting dynamic is complex and the consequences of this complexity are examined in terms of policy making.