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Raising Rivals' Fixed (Labor) Costs: The Deutsche Post Case

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  • Sven Heitzler
  • Christian Wey

Abstract

We analyze the bargaining problem of an incumbent firm and a union when the wage contract becomes generally binding. Our main application relates to competition among operators of mail delivery networks. We describe the Deutsche Post case which highlights the raising rivals' costs incentive and its consequences resulting from labor laws that make collective agreements generally binding. We show that minimum wages implemented by means of extension regulation are an effective deterrence instrument which frustrates both market entry as well as investments into the build-up of a mail delivery network.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.357066.de/dp1008.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1008.

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Length: 31 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1008

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Keywords: Minimum wages; postal services; collective bargaining; raising rivals' costs;

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