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Wages and productivity growth in a dynamic monopoly

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  • Bester, Helmut
  • Petrakis, Emmanuel

Abstract

This paper studies the intertemporal problem of a monopolistic firm that engages in productivity enhancing innovations to reduce its labor costs. If the level of wages is sufficiently low, the firm's rate of productivity growth approaches the rate of wage growth and eventually the firm reaches a steady state where its unit labor cost remains constant over time. Otherwise, it will gradually reduce its innovation effort over time and ultimately terminate production. Productivity dependent wage differentials do not affect productivity growth in the steady state; they increase, however, the firm's long--run equilibrium cost level.
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  • Bester, Helmut & Petrakis, Emmanuel, 2004. "Wages and productivity growth in a dynamic monopoly," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 83-100, January.
    • Handle: RePEc:eee:indorg:v:22:y:2004:i:1:p:83-100
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    Cited by:

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    2. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute of Labor Economics (IZA).
    3. Constantine Manasakis & Emmanuel Petrakis, 2009. "Union structure and firms' incentives for cooperative R&D investments," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 665-693, May.
    4. Taymaz, Erol & Voyvoda, Ebru & Yilmaz, Kamil, 2024. "Is there a virtuous cycle between wages and productivity? Turkish experience after the transition to democracy," World Development, Elsevier, vol. 175(C).
    5. Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2012. "Wage bargaining, productivity growth and long-run industry structure," Labour Economics, Elsevier, vol. 19(6), pages 923-930.
    6. Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2009. "Wages and productivity growth in a dynamic oligopoly," Discussion Papers 2009/18, Free University Berlin, School of Business & Economics.
    7. Erol Taymaz & Ebru Voyvoda & Kamil Yilmaz, 2021. "Transition to Democracy, Real Wages and Productivity: The Turkish Experience," Koç University-TUSIAD Economic Research Forum Working Papers 2111, Koc University-TUSIAD Economic Research Forum.

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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