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Endogenous Contracts in Unionized Oligopoly

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  • Dusanee Kesavayuth
  • Vasileios Zikos

Abstract

We study the endogenous determination of contracts in a unionized oligopoly and the welfare implications thereof. Alternative contracts specify the sequencing in the selection of R&D and wages. They can be classified as 'fixed' when the unions set wages before the firms make their R&D decisions or 'floating' when the sequencing of these choices is reversed. If the unions are highly employment-oriented, we find that either all firm-union pairs choose floating-wage contracts or both contract types may coexist depending on the degree of technological spillovers. However, when the unions have stronger preference over attaining a good wage deal, then it becomes very likely that fixed-wage contracts will endogenously emerge because they can serve as an insurance device against oppor tunistic wage increases. Our welfare analysis suggests that welfare-improving contracts may nevertheless not always arise in equilibrium. Copyright 2009 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by CEIS in its journal LABOUR.

Volume (Year): 23 (2009)
Issue (Month): 2 (06)
Pages: 209-235

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Handle: RePEc:bla:labour:v:23:y:2009:i:2:p:209-235

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