NEGOTIATION OF PROFIT-SHARING CONTRACTS IN INDUSTRY

We examine the properties of profit-sharing in a game-theoretic oligopoly model of industry. Profit-sharing contracts are viewed as a means of strategic commitment, not as an internal incentive system. In our model, firms choose a contract subject to the employees' participation constraint in a first stage, and compete on the output market in a second stage. We show that the choice of a profit-sharing contract by each firm is a non-cooperative equilibrium. In the case of Cournot competition, the game under study has the structure of the Prisoners' Dilemma. The case of price competition on the output market leads to somewhat different conclusions. © 1991.