Random pricing by labor-managed firms in markets with imperfect consumer information

Abstract

Price-setting oligopolists have market power if consumers have imperfect information. This paper compares the behavior of firms that maximize profits to those that maximize profit per worker in such an oligopoly. We consider a mixed strategy Nash equilibrium in which firms choose prices by random processes, and the number of firms is determined by free entry. Oligopolies composed only of profit-per-worker maximizing firms price higher on average. Firms in mixed oligopolies price higher the relatively more profit-per-worker firms are in the group, but profit-per-worker maximizing firms price lower than profit maximizing firms.