under outside ownership applies here: each customer-owner makes a take-it-or-leave-it
ofiEer to each employee in the first stage. Employees can then accept one of the offers or
reject all of them. If a firm has an offer accepted by at least one employee the game ends
for that firm. If the firm's offer is rejected by all the employees then the game moves
to a second stage (for that firm) where the employees make take-it-or-leave-it offers to
the remaining customers). The customers) then accept(s) or reject(s) the offer and the
game ends. Again solving by backward induction one obtains the bargaining solution
under customer cooperative:
• Bertrand competition between employees in the second stage of the bargaining game
results in the following equilibrium payoffs: employee Eu gets V — V, each customer
Ci gets V_, and the other employees Et∙j∙ get O. It is easy to see that equilibrium
paʌoffs are the same whether one or two customers end up in stage 2.
• These payoffs serve as outside options for the customers and employees in stage one.
And the bargaining solution under customer cooperative is then given by:
Agent: employee Ец employee Eij outside owner Oi customer Ci
share: V-V O O V
As one might have expected, under customer cooperative competition between firms for
good employees has no effect on the bargaining outcome. Under this ownership structure
competition between employees inside a firm is maximized, and since both firms are
identical competition across firms does not add any additional competitive pressure.
Each employee here chooses his initial investment in human capital ki to maximize:
≡x⅛∕ (ʌɪog(l + *i)) - ʃ(ɪog(l + fcj))l - ki} (12)
so that equilibrium investment levels are given by:
Lemma 11 The equilibrium human capital investment levels under customer cooperative
are given by:
⅛∙φ∙-i-
Note that here the solution is the same whether f' > 1 or f' ≤ 1. As before, the socially
efficient outcome is achieved under this ownership structure.
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