Workers' skills, product quality and industry equilibrium
AbstractIn this paper we develop a model of a vertically differentiated industry where the production of higher quality goods needs a higher fraction of specialized labour. In the first stage, firms choose the quality of their products, in the second, both good prices and skilled workersâ wages are determined. We show that in duopoly, though supplying different variants of the product, firms tend to cluster either at the bottom or at the top of the quality ladder, depending on skilled labour availability. This switch in equilibrium qualities creates a discontinuous behaviour for the wage rate of skilled workers. When the supply of skilled labour is made endogenous, two equilibria are simultaneously possible: one with low-skill, low quality, the other with high-skill, high-quality.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 18 (2000)
Issue (Month): 4 (May)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- GABSZEWICZ, Jean & TURRINI, Alessandro, 1997. "Workers’ skills, product quality and industry equilibrium," CORE Discussion Papers 1997055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- GABSZEWICZ, Jean J. & TURRINI, Alessandro, . "Workers' skills, product quality and industry equilibrium," CORE Discussion Papers RP -1451, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- D4 - Microeconomics - - Market Structure and Pricing
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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- Bhattacharyya, Ranajoy & Saha, Bibhas, 2011. "Wage bargaining and quality competition," MPRA Paper 30968, University Library of Munich, Germany.
- E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.
- Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2006. "A Systematic Decomposition of World Trade into Horizontal and Vertical IIT," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(3), pages 459-475, October.
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