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Employee Control and Oligopoly in a Free Market Economy

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  • Cremer, Helmuth
  • Crémer, Jacques

Abstract

We study duopolistic markets where a profit-maximizing firm competes with an employee-controlled firm that maximizes value-added per employee. We first study an industry with Cournot competition. We show that the presence of an employee-controlled firm does not affect the equilibrium number of firms, lowers aggregate output, increases price and reduces social welfare. The employee-controlled firm has a smaller equilibrium output than its competitor. For Hotelling type competition in a market with diversified products, we show that equilibrium locations are not affected by employee control, that prices increase and that social welfare decreases. The market share of the employee-controlled firm is lower than that of its competitor. Surprisingly, the profits of both firms can increase when control is transferred from stockholders to employees in one of them. Finally, we show that employees would not want to buy a firm from its owners.
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  • Cremer, Helmuth & Crémer, Jacques, 1992. "Employee Control and Oligopoly in a Free Market Economy," IDEI Working Papers 11, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:4544
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    Cited by:

    1. Philippe De Donder, 2005. "L'entreprise publique en concurrence : les oligopoles mixtes," Revue Française d'Économie, Programme National Persée, vol. 20(2), pages 11-50.
    2. Mikami, Kazuhiko, 2003. "Market power and the form of enterprise: capitalist firms, worker-owned firms and consumer cooperatives," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 533-552, December.
    3. Yoshinari Miyamoto, 2010. "Strategic Investment In A Labour‐Managed Duopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 62(4), pages 317-341, October.

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