Review of Industrial Organization

, Volume 8, Issue 4, pp 503–508 | Cite as

Indifference to profit-sharing is consistent

  • Sherrill Shaffer


The incentive for a firm unilaterally to switch from a conventional wage to profit-sharing is analyzed for a duopoly as a function of the degree of market power. The point of indifference is shown to be the consistent-conjectures mode of conduct; more competitive firms will not switch while less competitive firms will switch. A proportional tax on corporate profits will not alter the incentive of a firm to adopt or reject profit-sharing.

Key words

Profit-sharing incentives duopoly consistency tax 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Boyer, M. and Moreaux, M. (1983) ‘Conjectures, rationality and duopoly theory,’International Journal of Industrial Organization,1, 23–41.Google Scholar
  2. Bresnahan, T. F. (1981) ‘Duopoly models with consistent conjectures,’American Economic Review,71, 934–945.Google Scholar
  3. Bresnahan, T. F. (1989) ‘Empirical studies of industries with market power,’ Chapter 17 in Schmalensee, R. and Willig, R. D. (eds)Handbook of Industrial Organization, Vol. II. New York: North-Holland.Google Scholar
  4. Dickson, V. A. (1982) ‘Collusion and price-cost margins,’Economica,49, 39–42.Google Scholar
  5. Driskill, R. and McCafferty, S. (1988) ‘Dynamic duopoly with output adjustment costs in international markets: taking the conjecture out of conjectural variations,’ Ohio State University,mimeo.Google Scholar
  6. Laitner, J. (1980) ‘“Rational” duopoly equilibria,’Quarterly Journal of Economics,95, 641–662Google Scholar
  7. Perry, M. K. (1982) ‘Oligopoly and consistent conjectural variations’,Bell Journal of Economics,13, 197–205.Google Scholar
  8. Stewart, G. (1989) ‘Profit-sharing in Cournot oligopoly,’Economics Letters,31, 221–224.Google Scholar
  9. Tirole, J. (1988)The Theory of Industrial Organization. Cambridge, MA: MIT Press.Google Scholar
  10. Wadhwani, S. (1988) ‘Profit-sharing as a cure for unemployment: some doubts,’International Journal of Industrial Organization,6, 59–68.Google Scholar
  11. Waterson, M. (1984)Economic Theory of the Industry. New York: Cambridge University Press.Google Scholar
  12. Weitzman, M. L. (1984)The Share Economy. Cambridge, MA: Harvard University Press.Google Scholar
  13. Weitzman, M. L. (1985) ‘The simple macroeconomics of profit-sharing,’American Economic Review,75, 937–953.Google Scholar
  14. Weitzman, M. L. (1987) ‘Steady state unemployment under profit-sharing,’Economic Journal 97, 86–105.Google Scholar
  15. Worthington, P. R. (1990) ‘Strategic investment and conjectural variations,’International Journal of Industrial Organization,8, 315–328.Google Scholar

Copyright information

© Kluwer Academic Publishers 1993

Authors and Affiliations

  • Sherrill Shaffer
    • 1
  1. 1.Federal Reserve Bank of PhiladelphiaPhiladelphiaUSA

Personalised recommendations