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(Local) Wage Settings and (International) Entry Deterrence

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  • Domenico Buccella

Abstract

The present paper investigates the use of national wage settings as a mechanism to deter entry via foreign direct investment (FDI) in a unionized monopoly industry. A union which sets centralized wages in a multi-unit firm can both decentralize and change the agenda to prevent the market entry of a non-unionized firm. The adoption of the efficient bargaining agenda is especially effective to deter entry because it lowers the fixed-cost threshold the entrant can bear. Moreover, through side-payments, the incumbent and the union can have common interests in modifying the wage setting to reach outcomes that is Pareto-superior to duopoly. However, if the union cedes "too much power" and becomes "too weak", internal conflicts with the incumbent firm may arise.

Suggested Citation

  • Domenico Buccella, 2017. "(Local) Wage Settings and (International) Entry Deterrence," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(2), pages 170-187.
    • Handle: RePEc:prg:jnlpep:v:2017:y:2017:i:2:id:602:p:170-187
    DOI: 10.18267/j.pep.602
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    References listed on IDEAS

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    1. BORGHIJS, Alain & DU CAJU, Philip, 1999. "EMU and European trade union cooperation," Working Papers 1999013, University of Antwerp, Faculty of Business and Economics.
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    More about this item

    Keywords

    labour unions; oligopoly; market entry;
    All these keywords.

    JEL classification:

    • 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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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