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Strategic Investment and International Outsourcing In Unionised Oligopoly

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  • Dermot Leahy
  • Catia Montagna

Abstract

We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a nonunionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to ‘escape’ the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource.

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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 11/18.

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Handle: RePEc:not:notgep:11/18

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Keywords: Outsourcing; Unionisation; Wage Dispersion; Strategic Investment; Oligopoly;

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  1. Dermot Leahy & Catia Montagna, . "Strategic Investment and International Outsourcing In Unionised Oligopoly," Discussion Papers 11/18, University of Nottingham, GEP.

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