Codetermination as a strategic advantage?

A theoretical model of codetermination is considered, where consistent with German institutions, firm owners bargain with employees' representatives a bout employment but not about wages. A duopoly and a more general oligopoli stic situation are analyzed. For some range of bargaining power a prisoner' s dilemma exists. Codetermination leads to increased profits if the other f irm is a traditional profit maximizer. Bargaining is the dominant strategy, although joint profits would be maximized with unrestricted profit-maximiz ation. The theory is tested with data from 22 German firms, who operate in the same markets over 23 years. Codetermined firms actually show a differen t behavior than other companies. (C) 2001 Elsevier Science B.V. All rights reserved.