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 workers’ 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 InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997055.
Date of creation: 01 Aug 1997
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Quality competition; strategic effects; endogenous market structure; skills investments; multiple equilibria.;
Other versions of this item:
- Gabszewicz, J. & Turrini, A., 2000. "Workers' skills, product quality and industry equilibrium," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 575-593, May.
- 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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- Jean Gabszewicz & Alessandro Turrini, 1999. "Workers' Skills and Product Selection," Revue Économique, Programme National Persée, vol. 50(3), pages 383-391.
- Alessandro Turrini & Jean Gabszewicz, 1999. "Workers' Skills and Product Selection," Revue économique, Presses de Sciences-Po, vol. 0(3), pages 383-391.
- Bhattacharyya, Ranajoy & Saha, Bibhas, 2011. "Wage bargaining and quality competition," MPRA Paper 30968, University Library of Munich, Germany.
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