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Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing

  • Rupayan Pal

    ()

  • Bibhas Saha

    ()

This paper introduces wage bargaining in the framework of Milgrom and Roberts where the workers' reservation wage is the relevant information parameter critical for entry. The authors show that entry threat signi cantly distorts the wage, which in turn adversely a ects the rm's ability to signal through price. Consequently, the separating equilibrium (in price) does not always exist. Instead, the authors get a semi-separating equilibrium. Pooling equilibrium may not also exist. If, however, wage agreements can be made public, signalling occurs with or without distortions in the full information wages. Pooling equilibrium in wage also exists. The paper also examines whether wage or price is the preferred signalling device, and whether wage agreements should be made public or not. [WP no. 14].

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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 95 (2008)
Issue (Month): 2 (November)
Pages: 121-147

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Handle: RePEc:kap:jeczfn:v:95:y:2008:i:2:p:121-147
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  1. Rupayan Pal & Bibhas Saha, 2006. "Wage Commitment, Signalling, and Entry Deterrence or Accommodation," LABOUR, CEIS, vol. 20(4), pages 625-650, December.
  2. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Kraft, Kornelius, 1998. "The codetermined firm in oligopoly," Economics Letters, Elsevier, vol. 61(2), pages 195-201, November.
  4. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 551-592, April.
  5. Martin, Stephen, 1995. "Oligopoly limit pricing: Strategic substitutes, strategic complements," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 41-65, March.
  6. Sudipa Majumdar & Bibhas Saha, 1998. "Job security, wage bargaining and duopoly outcomes," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(4), pages 389-403.
  7. Aronsson, Thomas & Lofgren, Karl-Gustaf & Wikstrom, Magnus, 1993. "Monopoly union versus efficient bargaining : Wage and employment determination in the Swedish construction sector," European Journal of Political Economy, Elsevier, vol. 9(3), pages 357-370, August.
  8. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
  9. Albaek, Svend & Overgaard, Per Baltzer, 1994. "Advertising and pricing to deter or accommodate entry when demand is unknown: Comment," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 83-87, March.
  10. Dewatripont, Mathias, 1987. "Entry deterrence under trade unions," European Economic Review, Elsevier, vol. 31(1-2), pages 149-156.
  11. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
  12. Clask, A. & Oswald, A., 1992. "Trade Union Utility Functions: A survey of Union Leaders' Views," Economics Series Working Papers 99132, University of Oxford, Department of Economics.
  13. Peter Cramton & Morley Gunderson & Joseph Tracy, 1999. "The Effect Of Collective Bargaining Legislation On Strikes And Wages," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 475-487, August.
  14. Dowrick, Steve, 1989. "Union-Oligopoly Bargaining," Economic Journal, Royal Economic Society, vol. 99(398), pages 1123-42, December.
  15. A. Jorge Padilla & Samuel Bentolila & Juan J. Dolado, 1996. "Wage Bargaining in Industries with Market Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(4), pages 535-564, December.
  16. Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
  17. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  18. Laurent Linnemer, 1998. "Entry Deterrence, Product Quality: Price and Advertising as Signals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 615-645, December.
  19. Church, Jeffrey & Ware, Roger, 1996. "Delegation, market share and the limit price in sequential entry models," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 575-609, July.
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