López, Mónica Correa (University of Warwick) Nayor, Robin A. (University of Warwick)
Abstract
This paper compares Cournot and Bertrand equilibria in a downstream differentiated duopoly in which the input price (wage) paid by each downstream firm is the outcome of a strategic bargain with its upstream supplier (labour union). We show that the standard result that Cournot equilibrium profits exceed those under Bertrand competition - when the differentiated duopoly game is played in imperfect substitutes - is reversible. Whether equilibrium profits are higher under Cournot or Bertrand competition is shown to depend upon the nature of the upstream agents’ preferences, on the distribution of bargaining power over the input price and on the degree of product market differentiation. We find that the standard result holds unless unions are both powerful and place considerable weight on the wage argument in their utility function. One implication of this is that if the upstream agents are profit-maximising firms, then the standard result will obtain.
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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
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