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Endogenous scope of firm-union bargaining with vertical pay comparisons


  • Kopel, Michael
  • Petrakis, Emmanuel
  • Ressi, Anna


There is strong evidence that employees’ motivation and incentives in the workplace are affected by vertical pay comparisons. In a stylized Cournot duopoly model with firm–specific unions that institutionalize workers’ vertical fairness concerns, we show that universal wage employment (w,e)–bargaining may arise as the equilibrium scope of bargaining institution. We thus propose that intra–firm vertical fairness concerns may resolve the mismatch between recent findings in the empirical literature on labor market institutions and the predictions of traditional models that universal (w,e)–bargaining will never arise in equilibrium (the “Scope of Bargaining Puzzle”). We derive a number of testable hypotheses that address the recent shift towards more decentralized bargaining institutions, the decline in unions’ bargaining power, and the prevalence of (w,e)–bargaining.

Suggested Citation

  • Kopel, Michael & Petrakis, Emmanuel & Ressi, Anna, 2019. "Endogenous scope of firm-union bargaining with vertical pay comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 39-52.
  • Handle: RePEc:eee:jeborg:v:167:y:2019:i:c:p:39-52
    DOI: 10.1016/j.jebo.2019.09.017

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    More about this item


    Scope of bargaining; Unionized oligopoly; Decentralized bargaining; Relative fairness concerns; Vertical pay comparison;

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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