Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies
AbstractThe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07004.
Length: 16 pages
Date of creation: Feb 2007
Date of revision:
Contact details of provider:
Postal: Universitätsplatz 2, Gebäude W und I, 39106 Magdeburg
Phone: (0391) 67-18 584
Fax: (0391) 67-12 120
Web page: http://www.ww.uni-magdeburg.de
More information through EDIRC
Piece rate; fixed wage; collective wage agreements;
Other versions of this item:
- Kirstein, Roland & Kirstein, Annette, 2004. "Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies," CSLE Discussion Paper Series 2004-09, Saarland University, CSLE - Center for the Study of Law and Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
- NEP-BEC-2007-05-12 (Business Economics)
- NEP-COM-2007-05-12 (Industrial Competition)
- NEP-LAB-2007-05-12 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hermalin, Benjamin E., 1991.
"The Effects of Competition on Executive Behavior,"
Department of Economics, Working Paper Series
qt7m13v5dd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Nickell, S.J., 1993.
"Competition and Crporate Performance,"
Economics Series Working Papers
99155, University of Oxford, Department of Economics.
- Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, vol. 73(2), pages 278-83, May.
- Gal-Or, Esther, 1995. "Correlated Contracts in Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 75-100, February.
- Haucap, Justus & Pauly, Uwe & Wey, Christian, 2001.
"Collective wage setting when wages are generally binding An antitrust perspective,"
International Review of Law and Economics,
Elsevier, vol. 21(3), pages 287-307, September.
- Justus Haucap & Uwe Pauly & Christian Wey, 2000. "Collective Wage Setting When Wages Are Generally Binding: An Antitrust Perspective," CIG Working Papers FS IV 00-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Hart, R. A., 1990. "Profit sharing and work sharing," Economics Letters, Elsevier, vol. 34(1), pages 11-14, September.
- Gary Bornstein & Uri Gneezy, 2002. "Price Competition Between Teams," Experimental Economics, Springer, vol. 5(1), pages 29-38, June.
- Stewart, Geoff, 1989. "Profit-sharing in cournot oligopoly," Economics Letters, Elsevier, vol. 31(3), pages 221-224, December.
- Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
- Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
- Rajesh K. Aggarwal & Andrew A. Samwick, 1999.
"Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence,"
Journal of Finance,
American Finance Association, vol. 54(6), pages 1999-2043, December.
- Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
- Schmidt, Klaus M., 1996.
"Managerial Incentives and Product Market Competition,"
CEPR Discussion Papers
1382, C.E.P.R. Discussion Papers.
- Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 191-213, April.
- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
- Fee, C Edward & Hadlock, Charles J, 2000. "Management Turnover and Product Market Competition: Empirical Evidence from the U.S. Newspaper Industry," The Journal of Business, University of Chicago Press, vol. 73(2), pages 205-43, April.
- Paz Espinosa, Maria & Rhee, Changyong, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 565-88, August.
- 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.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-40, December.
- Amable, Bruno & Gatti, Donatella, 2002. "Macroeconomic effects of product market competition in a dynamic efficiency wage model," Economics Letters, Elsevier, vol. 75(1), pages 39-46, March.
- Bensaid, Bernard & Gary-Bobo, Robert J., 1991. "Negotiation of profit-sharing contracts in industry," European Economic Review, Elsevier, vol. 35(5), pages 1069-1085, July.
- Kuhn, Kai-Uwe, 1994. "Labour Contracts, Product Market Oligopoly, and Involuntary Unemployment," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 366-84, July.
- Oriana Bandiera, 2003. "Land Reform, the Market for Protection, and the Origins of the Sicilian Mafia: Theory and Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 218-244, April.
- repec:aah:aarhec:1999-17 is not listed on IDEAS
- Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-24, June.
- Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
- 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.
- Bornstein, Gary & Kugler, Tamar & Budescu, David V. & Selten, Reinhard, 2008. "Repeated price competition between individuals and between teams," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 808-821, June.
- 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.
- Jerger, Jürgen & Michaelis, Jochen, 2011. "The fixed wage puzzle: Why profit sharing is so hard to implement," Economics Letters, Elsevier, vol. 110(2), pages 104-106, February.
- Jürgen Jerger & Jochen Michaelis, 2010. "The Fixed Wage Puzzle : Why Profit Sharing Is So Hard to Implement," Working Papers 283, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
- Jürgen Jerger & Jochen Michaelis, 2010. "The Fixed Wage Puzzle: Why Profit Sharing Is So Hard to Implement," MAGKS Papers on Economics 201013, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guido Henkel).
If references are entirely missing, you can add them using this form.