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Buying Versus Hiring—An Indirect Evolutionary Approach

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  • Siegfried K. Berninghaus
  • Werner Güth

Abstract

On a symmetric homogeneous oligopoly market with stochastic demand, firms can either hire employees or buy their labor input on a competitive labor market. Whereas the wage of hired labor does not depend on the realization of stochastic demand, the price of ‘bought’ labor reacts positively to product demand. We derive the equilibrium price vector to define an evolutionary process, assuming that the number of hiring firms increases when they earn more than buying firms. We then derive and discuss the stationary distribution of this stochastic adaptation process.

Suggested Citation

  • Siegfried K. Berninghaus & Werner Güth, 2009. "Buying Versus Hiring—An Indirect Evolutionary Approach," Metroeconomica, Wiley Blackwell, vol. 60(4), pages 619-637, November.
    • Handle: RePEc:bla:metroe:v:60:y:2009:i:4:p:619-637
    DOI: 10.1111/j.1467-999X.2008.00358.x
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    1. repec:dau:papers:123456789/12331 is not listed on IDEAS
    2. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    3. Lewin, Peter & Phelan, Steven E, 2000. "An Austrian Theory of the Firm," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 13(1), pages 59-79, February.
    4. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434-434.
    5. Siegfried Berninghaus & Werner Güth & Hartmut Kliemt, "undated". "From Teleology to Evolution Bridging the gap between rationality and adaptation in social explanation," Papers on Strategic Interaction 2002-24, Max Planck Institute of Economics, Strategic Interaction Group.
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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