IDEAS home Printed from https://ideas.repec.org/a/spr/portec/v15y2016i1d10.1007_s10258-016-0113-x.html
   My bibliography  Save this article

Profit sharing as entry deterrence mechanism

Author

Listed:
  • Domenico Buccella

    (Leon Kozminski University)

Abstract

In a right-to-manage framework, this paper analyzes the optimal choice of the pay scheme (profit sharing vs. fixed wage) in a unionized duopoly with potential market entry and decentralized bargaining. The paper shows that, depending on the institutional features, both pay systems can arise as equilibria in Nash strategies. Under duopoly with committed bargaining, the fixed wage is the Nash equilibrium; with flexible bargaining, an agreement between the incumbent firm and its union about profit sharing arises as Nash equilibrium, if the union is not too strong. A monopoly with threat of entry reinforces the selection of profit sharing as a deterrent mechanism.

Suggested Citation

  • Domenico Buccella, 2016. "Profit sharing as entry deterrence mechanism," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 15(1), pages 17-31, April.
    • Handle: RePEc:spr:portec:v:15:y:2016:i:1:d:10.1007_s10258-016-0113-x
    DOI: 10.1007/s10258-016-0113-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10258-016-0113-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10258-016-0113-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Dhillon, Amrita & Petrakis, Emmanuel, 2001. "Prot-Sharing, Bertrand Competition and Monopoly Unions: A Note," Economic Research Papers 269382, University of Warwick - Department of Economics.
    2. Chaim Fershtman & Kenneth L. Judd, 2006. "Equilibrium Incentives in Oligopoly: Corrigendum," American Economic Review, American Economic Association, vol. 96(4), pages 1367-1367, September.
    3. Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 425-433, May.
    4. Fung, K. C., 1989. "Profit-sharing and European unemployment," European Economic Review, Elsevier, vol. 33(9), pages 1787-1798, December.
    5. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    6. Vannini, Stefano & Bughin, Jacques, 2000. "To be (unionized) or not to be? A case for cost-raising strategies under Cournot oligopoly," European Economic Review, Elsevier, vol. 44(9), pages 1763-1781, October.
    7. Anne Gielen & Marcel Kerkhofs & Jan Ours, 2010. "How performance related pay affects productivity and employment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(1), pages 291-301, January.
    8. Bughin, Jacques, 1999. "The strategic choice of union-oligopoly bargaining agenda," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1029-1040, October.
    9. Hoel, M. & Moene, K.O., 1988. "Profit Sharing, Unions And Investments," Memorandum 1988_029, Oslo University, Department of Economics.
    10. Nickell, S J & Andrews, M, 1983. "Unions, Real Wages and Employment in Britain 1951-79," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 183-206, Supplemen.
    11. repec:bla:scandj:v:90:y:1988:i:4:p:493-505 is not listed on IDEAS
    12. Petrakis, Emmanuel & Vlassis, Minas, 2000. "Endogenous scope of bargaining in a union-oligopoly model: when will firms and unions bargain over employment?," Labour Economics, Elsevier, vol. 7(3), pages 261-281, May.
    13. Bill Yang, 1995. "Unionized oligopoly, labor-management cooperation, and international competitiveness," Journal of Economics, Springer, vol. 62(1), pages 33-53, February.
    14. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    15. Jackman, Richard, 1988. "Profit-sharing in a unionised economy with imperfect competition," International Journal of Industrial Organization, Elsevier, vol. 6(1), pages 47-57, March.
    16. Mukherjee, Arijit & Wang, Leonard F.S., 2013. "Labour union, entry and consumer welfare," Economics Letters, Elsevier, vol. 120(3), pages 603-605.
    17. repec:bla:scandj:v:93:y:1991:i:4:p:577-84 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luciano Fanti & Domenico Buccella, 2018. "Social Welfare and Profit-Sharing Rule in a Unionised Duopoly with Profit Tax/Subsidy," Hacienda Pública Española / Review of Public Economics, IEF, vol. 226(3), pages 59-84, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. António Brandão & Joana Pinho, 2018. "Productivity Shocks in a Union‐Duopoly Model," Manchester School, University of Manchester, vol. 86(6), pages 722-756, December.
    2. Pei-Cheng Liao, 2014. "Strategic Delegation of Multiple Tasks," Australian Economic Papers, Wiley Blackwell, vol. 53(1-2), pages 77-96, June.
    3. Fanti, Luciano & Buccella, Domenico, 2015. "Bargaining agenda, timing, and entry," MPRA Paper 64089, University Library of Munich, Germany.
    4. Bill Yang, 1995. "Unionized oligopoly, labor-management cooperation, and international competitiveness," Journal of Economics, Springer, vol. 62(1), pages 33-53, February.
    5. Gu, Yiquan, 2010. "Wage and Employment Effects of Workplace Representation – A ""Right To Co-Manage"" Model," Ruhr Economic Papers 178, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. Luciano Fanti & Domenico Buccella, 2016. "Bargaining Agenda and Entry in a Unionised Model with Network Effects," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(1), pages 91-121, March.
    7. repec:zbw:rwirep:0178 is not listed on IDEAS
    8. Domenico Buccella & Luciano Fanti, 2017. "A game-theoretic approach to the choice of union-oligopoly baargaining agenda," Discussion Papers 2017/214, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Luciano Fanti & Domenico Buccella, 2017. "Manager‐Union Bargaining Agenda Under Monopoly and with Network Effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(6), pages 717-730, September.
    10. Luciano Fanti & Domenico Buccella, 2018. "Union–Firm Bargaining Agenda Revisited: When Unions Have Distinct Preferences," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 35-50, January.
    11. Luciano Fanti, 2015. "Union–firm bargaining agenda: right-to-manage or efficient bargaining?," Economics Bulletin, AccessEcon, vol. 35(2), pages 936-948.
    12. Yiquan Gu, 2010. "Wage and Employment Eff ects of Workplace Representation – A ”Right To Co-Manage” Model," Ruhr Economic Papers 0178, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Domenico Buccella & Luciano Fanti, 2025. "Bargaining Agendas as Strategic Tools," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 68(1), pages 99-118, March.
    14. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.
    15. Kirstein, Roland & Kirstein, Annette, 2004. "Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies," CSLE Discussion Paper Series 2004-09, Saarland University, CSLE - Center for the Study of Law and Economics.
    16. Thorsten Bayindir-Upmann & Anke Gerber, 2003. "The Kalai-Smorodinsky Solution in Labor-Market Negotiations," CESifo Working Paper Series 941, CESifo.
    17. Ishita Chatterjee & Bibhas Saha, 2011. "Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution," University of East Anglia Applied and Financial Economics Working Paper Series 028, School of Economics, University of East Anglia, Norwich, UK..
    18. Nicola Meccheri & Luciano Fanti, 2012. "Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation," Working Paper series 44_12, Rimini Centre for Economic Analysis.
    19. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Managerial firms’ profitability, unions, and environmental taxes," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(2), pages 575-598, June.
    20. Claus-Jochen Haake & Thorsten Upmann & Papatya Duman, 2020. "Wage Bargaining and Employment Revisited: Separability and Efficiency in Collective Bargaining," CESifo Working Paper Series 8422, CESifo.
    21. Luciano Fanti, 2014. "Union-Firm Bargaining agenda: Right-to manage or Efficient Bargaining?," Discussion Papers 2014/182, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:portec:v:15:y:2016:i:1:d:10.1007_s10258-016-0113-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.