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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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    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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