Duopolistic Hiring and Sales Competition- A Theoretical and Experimental Analysis

Two firms compete on a sales market as well as in hiring labor. The duopolists'sales levels depend on their workforce. There are two each of two typesof workers, mobile and immobile, with differing effort costs. An immobileworker's eort costs are lower when he is employed by the local firm, whereasmobile workers always incur the same effort costs. The principals offer employmentcontracts to all workers, each selects an employer. The workers'choices determine production levels and prots. Our experimental resultsqualitatively confirm the theoretical predictions: Vanishing cost differencesbetween mobile and immobile workers (homogeneous case) induce monopolistichiring, but low firm profits. In contrast, large cost differences (heterogeneouscase), which capture immobility of labor or firm specificity of humancapital, result in higher profits and allow for various hiring constellationssuch as one firm hiring only low-cost workers.