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Non-rigid wages and merger profitability reversal under convex costs and centralised unionisation

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  • Luciano Fanti
  • Nicola Meccheri

Abstract

Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex costs) and centralised unionisation. Firstly, it is highlighted that a wage “non-rigidity” result applies: the post-merger wage is higher than in the pre-merger equilibrium. Secondly, it is shown that a “reversal result” in relation to merger profitability actually realises when the union is sufficiently oriented towards wages. Moreover, the higher the reservation wage, the degree of product differentiation and the union’s relative bargaining power, the higher the probability that merger reduces profits.

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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 2013/167.

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Date of creation: 16 Jul 2013
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Handle: RePEc:pie:dsedps:2013/167

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Keywords: wage rigidity result; merger profitability; unionised duopoly; convex costs.;

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References

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  1. Jagadeesh Gokhale & Erica L. Groshen & David Neumark, 1992. "Do hostile takeovers reduce extramarginal wage payments?," Working Paper 9215, Federal Reserve Bank of Cleveland.
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  8. Luciano Fanti & Nicola Meccheri, 2010. "The Cournot-Bertrand Profit Differential in a Differentiated Duopoly with Unions and Labour Decreasing Returns," Working Paper Series 36_10, The Rimini Centre for Economic Analysis.
  9. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
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  17. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  18. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics.
  19. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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  21. Kurt R. Brekke, 2004. "Competition or Coordination in Hospital Markets with Unionised Labour," International Journal of Health Care Finance and Economics, Springer, vol. 4(1), pages 65-89, 03.
  22. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
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  24. Dhillon, Amrita & Petrakis, Emmanuel, 2002. "A generalised wage rigidity result," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 285-311, March.
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