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Endogenous Contracts in Unionized Oligopoly

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  • Dusanee Kesavayuth
  • Vasileios Zikos

Abstract

We study the endogenous determination of contracts in a unionized oligopoly and the welfare implications thereof. Alternative contracts specify the sequencing in the selection of R&D and wages. They can be classified as 'fixed' when the unions set wages before the firms make their R&D decisions or 'floating' when the sequencing of these choices is reversed. If the unions are highly employment-oriented, we find that either all firm-union pairs choose floating-wage contracts or both contract types may coexist depending on the degree of technological spillovers. However, when the unions have stronger preference over attaining a good wage deal, then it becomes very likely that fixed-wage contracts will endogenously emerge because they can serve as an insurance device against oppor tunistic wage increases. Our welfare analysis suggests that welfare-improving contracts may nevertheless not always arise in equilibrium. Copyright 2009 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

Suggested Citation

  • Dusanee Kesavayuth & Vasileios Zikos, 2009. "Endogenous Contracts in Unionized Oligopoly," LABOUR, CEIS, vol. 23(2), pages 209-235, June.
  • Handle: RePEc:bla:labour:v:23:y:2009:i:2:p:209-235
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    References listed on IDEAS

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    1. Justus Haucap & Christian Wey, 2004. "Unionisation structures and innovation incentives," Economic Journal, Royal Economic Society, vol. 114(494), pages 149-165, March.
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    5. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    6. Petrakis, Emmanuel & Vlassis, Minas, 2000. "Endogenous scope of bargaining in a union-oligopoly model: when will firms and unions bargain over employment?," Labour Economics, Elsevier, vol. 7(3), pages 261-281, May.
    7. Tauman, Y & Weiss, Y, 1987. "Labor Unions and the Adoption of New Technology," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 477-501, October.
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    Cited by:

    1. Takauchi, Kazuhiro, 2016. "Profit-reducing fixed-price contract: The role of the transport sector," MPRA Paper 71413, University Library of Munich, Germany.
    2. Nicola Meccheri & Luciano Fanti, 2016. "Should delegation contracts be made before or after union wage setting? Endogenous moves in a managerial-unionized duopoly," Working Paper series 16-18, Rimini Centre for Economic Analysis.
    3. Kazuhiro Takauchi & Tomomichi Mizuno, 2017. "Solving a hold-up problem may harm all firms: downstream R&D and transport-price contracts," Discussion Papers 1707, Graduate School of Economics, Kobe University.

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