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The effects of entry in bilateral oligopoly

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  • Naylor, Robin
  • Soegaard, Christian

Abstract

We show that a firm’s profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by (decentralised) bargaining in unionised bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labour market rivalry which induces (profit-enhancing) wage moderation, a result which does not occur if unions can coordinate their wage demands under centralised bargaining. Whether the product or labour market effect dominates depends on the nature of union preferences, with a higher preference for wages making profit-raising entry more likely. We analyse how our results are sensitive to the curvature of the demand function, and the extent to which structural advantages due to incumbency enhance the benefits of entry. We also consider: (i) the impact of entry on a measure of social welfare comprising union utility, consumer surplus and firms’ profits, and (ii) a setting in which unionisation is determined endogenously through the decision of firms on whether or not to recognise unions.

Suggested Citation

  • Naylor, Robin & Soegaard, Christian, 2025. "The effects of entry in bilateral oligopoly," Research in Economics, Elsevier, vol. 79(1).
    • Handle: RePEc:eee:reecon:v:79:y:2025:i:1:s1090944324000784
    DOI: 10.1016/j.rie.2024.101014
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Unionised bilateral oligopoly; Entry; Wage bargaining; Firm profits;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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