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.