Contesting Contestability and the Efficiency of Wages
AbstractThe fundamental contribution of the paper is to contest the view that greater market contestability has non-negative effects on market performance. In a model where employees pose a threat of potential entry, we demonstrate that a reduction in barriers to entry causes no fall in industry price when incumbents are able to buy-off potential entry through higher wages. Over the longer term the analysis illustrates that increased market contestability can cause equilibrium industry price to be higher than that which would have occurred if entry bariers had persisted at their initial higher level. Correspondingly, the model indicates that investment in endogenous barriers to entry and wage ceilings on executive salaries may enhance market performance.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9707.
Date of creation: Oct 1997
Date of revision:
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More information through EDIRC
barriers to entry; market contestability; antitrust regulation; executive;
Other versions of this item:
- Andrew E. Burke & Theodore To, 1997. "Contesting Contestability and the Efficiency of Wages," Industrial Organization 9706005, EconWPA.
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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.:
- Conyon, Martin J., 1994. "Labour's share, market structure and trade unionism," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 117-131, March.
- Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993.
"Sticking it Out: Entrepreneurial Survival and Liquidity Constraints,"
NBER Working Papers
4494, National Bureau of Economic Research, Inc.
- Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
- Baumol, William J & Willig, Robert D, 1986. "Contestability: Developments since the Book," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 9-36, Suppl. No.
- Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-93, June.
- Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
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