Common use of Firms Clause in Contracts

Firms. Labor is the only production factor. Homogeneous good x is produced with a constant returns to scale technology, requiring one unit labor to produce one unit of output. It is freely traded without tariffs across countries and serves as the numeraire. Differentiated good q is produced in country s, where there is one leader s and ni domestic followers. Leader s produces q for both the domestic and foreign markets, taking leadership in both countries. The followers produce q only in the domestic market. The non-negative number ni of followers is endogenously determined by the free entry and exit of followers. Each firm incurs a constant marginal cost c to produce one unit of good. The profit of leader s consists of the profits from the domestic and foreign markets given by