This chapter investigates an international mixed duopoly market in
which a state-owned firm coexists with a foreign labour-managed firm. The
following timing of actions is considered. First, firms decide simultaneously
and non-cooperatively whether to use lifetime employment as a strategic
commitment device. If a firm provides lifetime employment, then it chooses
an output level and enters into a lifetime employment contract with the
number of workers necessary to achieve the output level. Second, firms
choose actual outputs simultaneously and non-cooperatively. This chapter
traces the firms’ reaction functions in the mixed duopoly model with lifetime
employment. Generally, duopoly reaction functions intersect only once, which
yields the stable equilibrium solution. However, this chapter shows that there
may be multiple stable Cournot solutions in the international mixed duopoly
model.
Keywords: Cournot model, economic welfare, foreign labour-managed
firm, income per worker, lifetime employment, mixed duopoly, reaction
functions, stable solutions, state-owned firm, strategic commitment.
