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Downstream competition and upstream labor market matching

Author

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  • Bo Chen

    (Shenzhen University
    Wuhan University
    King Fahd University of Petroleum and Minerals)

Abstract

This study investigates how externalities from downstream competition shape sorting in upstream labor markets. I model this as a two-stage game: A first stage of simultaneous one-to-one matching between firms and managers and a second stage of Cournot competition among matched pairs. If a firm’s technology and human capital are strategic complements, it is rational for each firm-manager pair to expect that the remaining agents will form a positive assortative matching (PAM), and the PAM on the grand market is a stable matching under rational expectations. The PAM remains stable even when they are strategic substitutes but the substitutive effect is moderate. However, if the substitutive effect is sufficiently strong, a negative assortative matching is stable. Social welfare induced by stable matchings is discussed.

Suggested Citation

  • Bo Chen, 2019. "Downstream competition and upstream labor market matching," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(4), pages 1055-1085, December.
    • Handle: RePEc:spr:jogath:v:48:y:2019:i:4:d:10.1007_s00182-019-00690-4
    DOI: 10.1007/s00182-019-00690-4
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    References listed on IDEAS

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    Cited by:

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    3. Kenzo Imamura & Hideo Konishi, 2023. "Assortative Matching with Externalities and Farsighted Agents," Dynamic Games and Applications, Springer, vol. 13(2), pages 497-509, June.

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    More about this item

    Keywords

    Matching; Assignment; Externalities; Cournot competition; Labor market; Sorting;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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