Organizational Entry Deterrence Barrier:The Japanese Firm vs.the American Firm

We formulate a three-stage game in which a Japanese firm as a generalized labor-managed firm and an American firm as a profit-maximizing firm compete in the homogeneous product market. In the first stage of the game, both the firms decide whether they enter the market or not. In the second stage, they invest capital stocks. In the third stage, they play a Nash-Cournot quantity game. We show that the Japanese firm employs more capital and produces more than does the American firm. By intentionally raising its fixed cost, the Japanese firm can survive in the market even though the American firm exits. Based on the difference in firm objectives, the Japanese firm builds an organizational deterrence barrier against the American firm through its high fixed cost. We give a rationale for long-term transactions between Japanese firms.