Buying Versus Hiring: An Indirect Evolutionary Approach

Abstract

On a symmetric homogeneous oligopoly market with stochastic demand, firms can either hire employees or buy their labor input on a competitive labor market. Whereas the wage of hired labor does not depend on the realization of stochastic demand, the price of ‘bought’ labor reacts positively to product demand. We derive the equilibrium price vector to define an evolutionary process, assuming that the number of hiring firms increases when they earn more than buying firms. We then derive and discuss the stationary distribution of this stochastic adaptation process.