Buying Versus Hiring – An Indirect Evolutionary Approach

On an otherwise symmetric oligopoly market with stochastic demands for heterogeneousproducts firms can either hire an employee or partner or buy therequired labor input on the labor market. Whereas the wage of hired labor doesnot depend on the realization of stochastic demand, the price of bought laborinput reacts positively to product demand. We first solve the market by derivingthe equilibrium price vector. We then assume that the number of hiring firmswill tend to increase when hiring firms make higher profits than non-hiring firms.We explicitly derive the stationary distribution of the thus defined stochasticadaptation process.