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Labor Unions and the Scale and Scope of Multi-Product Firms


  • Hartmut Egger
  • Michael Koch


This paper sets up a general oligopolistic equilibrium model with multi-product firms and union wage setting in a subset of industries. By claiming a wage premium, labor unions enforce a decline in firm scale and scope and thus dampen industrial output, with negative feedback effects on the competitive wage and positive ones on firm scale and scope in non-unionized sectors. In this setting, a decline in union density raises labor demand and thus wages in non-unionized as well as unionized industries. This induces a general decline in firm scale and scope, with the respective reduction being more pronounced in non-unionized industries. Aside from analyzing the consequences of deunionization in a closed economy, we also shed light on how multi-product firms respond to a country’s movement from autarky to free trade with a symmetric partner country. Access to international trade stimulates labor demand and raises the competitive as well as the union wage, thereby lowering firm scope in all industries. Since the labor market distortion becomes less severe, unionized and non-unionized firms become more similar in the size of their product range. While scope effects are unambiguous, adjustments in firm scale turn out to be less clearcut and inter alia depend on the degree of product differentiation.

Suggested Citation

  • Hartmut Egger & Michael Koch, 2011. "Labor Unions and the Scale and Scope of Multi-Product Firms," Working Papers 097, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:097_eggerkoch

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    References listed on IDEAS

    1. Norman, George & Thisse, Jacques-Francois, 1999. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 345-372, September.
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    More about this item


    Multi-product firms; General oligopolistic equilibrium; Labor unions; International trade;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • 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


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