Document Type : Original Research


Institute for Basic Economic Science, Osaka, Japan


This paper investigates two-stage competition with two joint-stock firms. In the first stage, each firm independently chooses a level of capacity. In the second stage, each firm independently chooses an output. The paper shows that each firm’s reaction function has a kink at its installed capacity level. In addition, the paper considers interactions between a joint-stock incumbent and a potential joint-stock entrant as well as a pair of established joint-stock firms. The paper demonstrates that there exist cases in which the joint-stock incumbent can deter entry by the potential joint-stock entrant.


Bonin, J. P., Jones, D. C., & Putterman, L. (1993). Theoretical and empirical studies of producer cooperatives: Will ever the twain meet? Journal of Economic Literature, 31, 1290-1320.
Bulow, J., Geanakoplos, J., & Klemperer, P. (1985). Holding idle capacity to deter entry. Economic Journal, 95, 178-182.
Dixit, A. (1980). The role of investment in entry-deterrence. Economic Journal, 90, 95-106.
Gilbert, R. J. (1989). Mobility barriers and the value of incumbency. In: Schmalensee, R., & Willig, R. D. (Eds.), Handbook of Industrial Organization, Volume 1 (pp. 475-535). Amsterdam: Elsevier Science Publishers.
Hey, J. D. (1981). A unified theory of the behaviour of profit-maximising, labour-managed and joint-stock firms operating under uncertainty. Economic Journal, 91, 364-374.
Kaplan, A. D. H., Dirlam, J. B., & Lanzillotti, R. F. (1958). Pricing in Big Business: A Case Approach. Washington, D. C.: The Brookings Institution.
Lambertini, L., & Rossini, G. (1998). Capital commitment and Cournot competition with labour-managed and profit-maximising firms. Australian Economic Papers, 37, 14-21.
Lanzillotti, R. F. (1958). Pricing objectives in large companies. American Economic Review, 48, 921-940.
Meade, J. E. (1972). The theory of labour-managed firms and of profit sharing. Economic Journal, 82, 402-428.
Ohnishi, K. (2009). Strategic commitment and three-stage games with labor-managed and profit-maximizing firms. Finnish Economic Papers, 22, 63-74.
Ohnishi, K. (2010). Lifetime employment contract and quantity competition with profit-maximizing and joint-stock firms. Journal of Institutional and Theoretical Economics, 166, 462-478
Ohnishi, K. (2014). Sequential mixed competition with a foreign joint-stock firm. International Journal of Social Sciences and Management Studies, 1, 38-52.
Ohnishi, K. (2015). Lifetime employment and a three-stage model with state-owned and joint-stock firms. In: Ohnishi, K. (Ed.), Firms’ Strategic Decisions: Theoretical and Empirical Findings, Volume 1 (pp. 155-169). Sharjah, UAE: Bentham Science Publishers.
Poddar, S. (2003). Excess capacity: a note. Keio Economic Studies, 40, 75-83.
Stewart, G. (1991). Strategic entry interactions involving profit-maximising and labour-managed firms. Oxford Economic Papers, 43, 570-583.
Tirole, J. (1988). The Theory of Industrial Organization. Cambridge MA: MIT Press.
Waldman, D. E., & Jensen, E. J. (2007). Industrial Organization: Theory and Practice. Boston, MA: Pearson/Addison Wesley.
Ware, R. (1984). Sunk costs and strategic commitment: a proposed three-stage equilibrium. Economic Journal, 94, 370-378.
Zhang, J. (1993). Holding excess capacity to deter entry in a labour-managed industry. Canadian Journal of Economics, 26, 222-234.