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Stability in a Cournot duopoly under asymmetric unionism

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  • Luciano Fanti
  • Luca Gori

Abstract

We analyse the stability issue in a Cournot duopoly with asymmetric unionism and heterogeneous players. We show that labour market institutions matter or the stability of the unique interior Cournot-Nash equilibrium. Interestingly, the role played by the existence of firm-specific unions on stability, when the degree of unionism is asymmetric between the two firms, is at all different depending on whether the (more) unionised firm has bounded rational or naive expectations. Indeed, a shift in the union’s preference from employment towards wages acts as an economic (de)stabiliser when workers are paid with the (competitive) unionised wage by the bounded rational firm and with the (unionised) competitive wage by the naïve firm.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2011/123.

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Date of creation: 09 Jan 2011
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Handle: RePEc:pie:dsedps:2011/123

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Keywords: Bifurcation; Cournot; Heterogeneous expectations; Monopoly union.;

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  1. Agiza, H.N. & Elsadany, A.A., 2003. "Nonlinear dynamics in the Cournot duopoly game with heterogeneous players," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 320(C), pages 512-524.
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  3. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
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  7. Lopez, Monica Correa & Naylor, Robin A., 2004. "The Cournot-Bertrand profit differential: A reversal result in a differentiated duopoly with wage bargaining," European Economic Review, Elsevier, vol. 48(3), pages 681-696, June.
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  12. Pencavel, John, 1985. " Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 197-225.
  13. Tramontana, Fabio, 2010. "Heterogeneous duopoly with isoelastic demand function," Economic Modelling, Elsevier, vol. 27(1), pages 350-357, January.
  14. Oswald, Andrew J, 1985. " Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications: Comment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 226-27.
  15. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  16. Pencavel, John H, 1984. "The Tradeoff between Wages and Employment in Trade Union Objectives," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 215-31, May.
  17. Bughin, J., 1995. "Unions and strategic managerial incentives," Economics Letters, Elsevier, vol. 47(1), pages 95-100, January.
  18. Rupayan Pal & Bibhas Saha, 2008. "Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing," Journal of Economics, Springer, vol. 95(2), pages 121-147, November.
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