The Effects of Entry in Oligopoly with Bargained Wages
AbstractWe show that a firm's profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by decentralised bargaining in unionised bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labour market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labour market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. An incumbent monopolist will have an incentive to accommodate entry if the labour market effect dominates. We also show that this incentive is stronger if the incumbent anticipates that, post entry, it will be able to act as a Stackelberg leader. Key words: Oligopoly ; wage bargaining ; profits and entry JEL classification: D43 ; J50 ; L13
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1044.
Date of creation: 2014
Date of revision:
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-COM-2014-04-11 (Industrial Competition)
- NEP-GER-2014-04-11 (German Papers)
- NEP-IND-2014-04-11 (Industrial Organization)
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