Capacity Investment and Mixed Duopoly with State-Owned and Labor-Managed Firms

We examine the behaviors of one state-owned welfare-maximizing firm and one labor-managed income-per-worker-maximizing firm in a two-stage mixed market model with capacity investment as a strategic instrument. In the first stage, each firm independently decides whether or not to install capacity. This capacity may subsequently be increased, but cannot be decreased. Hence, the firm’s capital cost changes from a variable cost to a fixed cost. In the second stage, each firm independently chooses its actual output. We show the equilibrium of the mixed model.