Kornelius Kraft

"Codetermination as a Strategic Advantage? "

JEL codes: D43; J52; J53; L13
Keywords: Codetermination; Oligopoly; Profits; Price Cost Margin

Abstract: A theoretical model of codetermination is considered, where consistent with German institutions firm owners bargain with employees' representatives about employment, but not about wages.  A duopoly and a more general oligopolistic situation are analyzed. For some range of the bargaining power a prisoner's dilemma exists. Codetermination leads to increased profits if the other firm is a traditional profit maximizer. Bargaining is the dominant strategy, although joint profits would be maximized with unrestricted profit-maximization. The theory is tested with data from 22 German firms, who operate in the same markets over 23 years. Codetermined firms actually show a different behavior than other companies.