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Strategic investment and international outsourcing in unionised oligopoly

  • Leahy, Dermot
  • Montagna, Catia

We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a non-unionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to ‘escape’ the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 2 ()
Pages: 260-269

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Handle: RePEc:eee:labeco:v:19:y:2012:i:2:p:260-269
DOI: 10.1016/j.labeco.2011.11.003
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