Abstract
This study investigates how externalities from downstream competition shape sorting in upstream labor markets. I model this as a two-stage game: A first stage of simultaneous one-to-one matching between firms and managers and a second stage of Cournot competition among matched pairs. If a firm's technology and human capital are strategic complements, it is rational for each firm-manager pair to expect that the remaining agents will form a positive assortative matching (PAM), and the PAM on the grand market is a stable matching under rational expectations. The PAM remains stable even when they are strategic substitutes but the substitutive effect is moderate. However, if the substitutive effect is sufficiently strong, a negative assortative matching is stable. Social welfare induced by stable matchings is discussed.
| Original language | English |
|---|---|
| Journal | International Journal of Game Theory |
| State | Published - 2019 |
