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Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework

Author

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  • Minas Vlassis
  • Maria Varvataki

Abstract

In a union-oligopoly static framework we study the role of unions regarding the possibility and the effects of endogenous cartel formation. Given that firms independently adjust their own quantities, we show that, if the unions preferences for wages relative to employment are sufficiently high and firms products are close enough substitutes, then collusion among firms may emerge in equilibrium, and that – in contrast to conventional wisdom – cartel formation proves to be a welfare-improving market arrangement. Quite remarkably, the latter gain in social welfare materializes at the cost of union rents, despite the union s presence being that which effectively sustains collusion.

Suggested Citation

  • Minas Vlassis & Maria Varvataki, 2019. "Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework," Annals of Economics and Statistics, GENES, issue 136, pages 79-102.
  • Handle: RePEc:adr:anecst:y:2019:i:136:p:79-102
    DOI: 10.15609/annaeconstat2009.136.0079
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    File URL: https://www.jstor.org/stable/10.15609/annaeconstat2009.136.0079
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    Keywords

    Oligopoly; Unions; Collusion.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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