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Price Competition and the Effects of Labour Unions on Innovation

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  • Debasmita Basak

Abstract

In contrast to the conventional belief that labour-union intervention reduces firms' incentives to innovate, I show that this may not hold true when the firms compete in prices. I find that the presence of labour unions may increase firms' incentives for innovation if the workers' reservation wage is high. Further, a comparison across the unionisation structures, viz., decentralised unions and centralised union, reveals that whether the firms innovate more under the former union structure or the latter one depends on the hold-up problem and the reservation wage of the workers.

Suggested Citation

  • Debasmita Basak, 2021. "Price Competition and the Effects of Labour Unions on Innovation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 177(3), pages 337-358.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2021-0009
    DOI: 10.1628/jite-2021-0009
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    More about this item

    Keywords

    industry-wide union; firm-specific union; process innovation; union utility;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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