SEMINAR 19 November 2012: John Kennes, University of Åarhus

Bidding for Terms

Abstract

The production possibility frontier of an organization can exhibit either increasing, constant, or decreasing returns to scale, depending on its current workforce. This paper considers the hiring problem of an organization in a competing job auction environment where each organization can set a 'reserve price' at each date in its life cycle. We find (i) increasing returns to scale organizations advertise negative reserve prices for new slots, which is equivalent to advertising an amenity (for example, free health club membership), (ii) constant returns to scale organizations advertise zero reserve prices (Wages are determined by simple Bertrand competition), and (iii) decreasing returns to scale organizations advertise positive reserve prices, which is equivalent to an insider-outsider wage schedule.