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Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies

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  • Roland Kirstein

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Annette Kirstein

Abstract

The instability of Cournot cartels can be overcome by a collective wage agreement if this agreement stipulates minimum fixed wages and piece rates that are legally enforceable. This new view on the institution of collective wage agreements is not only relevant for strategic management, it also has an important implication for economic policy: competition authorities should observe such agreements for their potentially collusive effect on product markets. Moreover, the model contributes to the explanation of the “fixed wage puzzle”, i.e., the observation that firms pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.

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File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_04.pdf
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Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07004.

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Length: 16 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:mag:wpaper:07004

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Keywords: Piece rate; fixed wage; collective wage agreements;

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References

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  1. Glazer, Jacob & Israel, Ronen, 1990. "Managerial incentives and financial signaling in product market competition," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 271-280, June.
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Cited by:
  1. Jerger , Jürgen & Michaelis, Jochen, 2010. "The Fixed Wage Puzzle: Why Profit Sharing Is So Hard to Implement," University of Regensburg Working Papers in Business, Economics and Management Information Systems 441, University of Regensburg, Department of Economics.
  2. Gary Bornstein & David V. Budescu & Tamar Kugler & Reinhard Selten, 2002. "Repeated Price Competition Between Individuals and Between Teams," Discussion Paper Series dp303, The Center for the Study of Rationality, Hebrew University, Jerusalem.

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