The Effects Of Entry In Bilateral Oligopoly
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 unionized 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 labor market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labor market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. A corollary of the results derived is that if the upstream agents are firms rather than labor unions, then profits are always decreasing in the number of firms, as in the standard Cournot model. We also show that if bargaining is centralized then there is no wage moderation effect and wages are the same independent of the number of firms, as in the standard model with exogenous factor costs.
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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 638.
Length: 24 pages
Date of creation: 2002
Date of revision:
Unionized bilateral oligopoly ; wage bargaining ; firm profits;
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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