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Stability in a Cournot duopoly under asymmetric unionism

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  • Fanti, Luciano
  • Gori, Luca

Abstract

We analyse the stability issue in a Cournot duopoly with heterogeneous players. We show that labour market institutions matter for 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 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33694.

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Date of creation: 24 Sep 2011
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Handle: RePEc:pra:mprapa:33694

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

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  1. 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.
  2. Tramontana, Fabio, 2010. "Heterogeneous duopoly with isoelastic demand function," Economic Modelling, Elsevier, vol. 27(1), pages 350-357, January.
  3. Luciano Fanti & Luca Gori, 2011. "A Note on Trade Unions, Unemployment Insurance, and Endogenous Growth," Eastern Economic Journal, Palgrave Macmillan, vol. 37(2), pages 270-280.
  4. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
  5. Dowrick, Steve, 1989. "Union-Oligopoly Bargaining," Economic Journal, Royal Economic Society, vol. 99(398), pages 1123-42, December.
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  7. Bughin, J., 1995. "Unions and strategic managerial incentives," Economics Letters, Elsevier, vol. 47(1), pages 95-100, January.
  8. Dowrick, Steve & Spencer, Barbara J, 1994. "Union Attitudes to Labor-Saving Innovation: When Are Unions Luddites?," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 316-44, April.
  9. Luciano Fanti & Nicola Meccheri, 2011. "The Cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns," Economics Bulletin, AccessEcon, vol. 31(1), pages 233-244.
  10. Holmlund, Bertil, 1985. " Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications: Comment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 228-33.
  11. 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.
  12. 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.
  13. 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.
  14. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-97, June.
  15. 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.
  16. Petrakis, Emmanuel & Vlassis, Minas, 2000. "Endogenous scope of bargaining in a union-oligopoly model: when will firms and unions bargain over employment?," Labour Economics, Elsevier, vol. 7(3), pages 261-281, May.
  17. 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.
  18. Zhang, Jixiang & Da, Qingli & Wang, Yanhua, 2007. "Analysis of nonlinear duopoly game with heterogeneous players," Economic Modelling, Elsevier, vol. 24(1), pages 138-148, January.
  19. 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.
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