Profit Sharing (with Workers) Facilitates Collusion (Among Firms)
AbstractWe show how profit sharing by firms with workers facilitates collusion among firms in a dynamic oligopoly environment with uncertain demand. We first show that firm profits can always be increased by tying wages to market conditions. The optimal agreement takes the form of an option and features partial sharing because increased sharing raises the expected price-wage differential, but reduces price-wage variability. We then show that given any cartel, there exist market conditions such that simply giving some expected profit to workers raises expected firm profits via the transfer's impact on the incentive to cheat on the cartel.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 37 (2006)
Issue (Month): 3 (Autumn)
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Web page: http://www.rje.org
Other versions of this item:
- Dan Bernhardt & Christopher P. Chambers, 2006. "Profit sharing (with workers) facilitates collusion (among firms)," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 483-502, 09.
- Dan Bernhardt & Chris Chambers, . "Profit Sharing (with workers) Facilitates Collusion (among firms)," Wallis Working Papers WP22, University of Rochester - Wallis Institute of Political Economy.
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- Aubert, Cécile, 2009. "Managerial Effort Incentives and Market Collusion," TSE Working Papers 09-127, Toulouse School of Economics (TSE).
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