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Deterring Entry through High Wages

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Author Info
Eric Toulemonde () (Department of Economics, University of Aarhus, Denmark)

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Abstract

This paper shows that incumbent firms could use wage rates to deter entry of new firms. Two cases are analyzed. In the first, incumbents determine wages of all firms producing the same good (an extreme case of a wage bargaining at the industry-level -a kind of bargaining which is prevalent in many European countries-). In the second, each firm can choose different wages, knowing that the efficiency of workers depends on their wage relative to a wage that they consider fair. In both cases, there are circumstances in which incumbents choose high wages in order to deter entry.

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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 1999-17.

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Handle: RePEc:aah:aarhec:1999-17

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Web page: http://www.econ.au.dk/afn/

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Related research
Keywords: Entry deterrence wages unions fairness

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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