This chapter investigates a mixed duopoly model where a capitalist private
firm and a state-owned public firm coexist. The following two-stage game is considered.
At stage one, the firms choose whether or not to provide lifetime employment as a
strategic device simultaneously and noncooperatively. This irreversible behavior
changes the price-competing market environment of stage two. At stage two, the firms
set prices simultaneously and noncooperatively. The chapter discusses the equilibrium
solution of the mixed market model. As a result of this analysis, we discover that
introducing lifetime employment into the model of price-setting mixed duopoly may be
beneficial for the state-owned firm.
Keywords: Capitalist private firm, consumer surplus, lifetime employment,
mixed duopoly, price competition, quantity precommitment, reaction functions,
economic welfare, state-owned public firm, subgame perfection.
