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Sequencing Strategically: Wage Negotiations Under Oligopoly

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  • Abhijit Banerji

    (Delhi School of Economics)

Abstract

In a unionized oligopoly, such as the American automobile industry, should the union (such as the United Auto Workers) negotiate new contracts by bargaining with the firms simultaneously, or should it "strategically sequence" its bargaining partners? This paper analyzes two models of noncooperative bargaining and product market oligopoly. In the first, bargaining is over wages and employment, in the second, it is over wages alone; employment and output are determined by the firms in a post negotiation product market game. One effect of sequencing bargaining partners is present in both scenarios: it allows preexisting contracts at the firms not being currently bargained with to act as "status quo points" that influence the bargaining outcome of the negotiations currently on. The better are the preexisting contracts from the union's point of view, the more attractive is the option of sequencing. In the second model, there is another channel, operating via the post negotiation product market game that tends to make sequencing preferable. By negotiating a relatively high wage with the first firm, the union can raise the profitability of the second firm in the product market game ; consequently, it can get a higher wage there as well, as its share in the incremental revenue that accrues. Moreover, the first firm is less reluctant to concede a higher wage (than under simultaneity) since it knows that the negative impact of that on its profits will be partly alleviated as the second firm will also make a larger concession.

Suggested Citation

  • Abhijit Banerji, 1999. "Sequencing Strategically: Wage Negotiations Under Oligopoly," Working papers 65, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:65
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    References listed on IDEAS

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    1. Dufour, Jean-Marie, 1982. "Generalized Chow Tests for Structural Change: A Coordinate-Free Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 565-575, October.
    2. R. Radhakrishna & C. Ravi, 1992. "Effects of Growth, Relative Price and Preferences on Food and Nutrition," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27, pages 303-323.
    3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bargaining; Strategic Sequencing; Wage Formation; Oligopoly;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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