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Raising Rivals' Fixed (Labor) Costs: The Deutsche Post Case

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  • Sven Heitzler
  • Christian Wey

Abstract

We analyze the bargaining problem of an incumbent firm and a union when the wage contract becomes generally binding. Our main application relates to competition among operators of mail delivery networks. We describe the Deutsche Post case which highlights the raising rivals' costs incentive and its consequences resulting from labor laws that make collective agreements generally binding. We show that minimum wages implemented by means of extension regulation are an effective deterrence instrument which frustrates both market entry as well as investments into the build-up of a mail delivery network.

Suggested Citation

  • Sven Heitzler & Christian Wey, 2010. "Raising Rivals' Fixed (Labor) Costs: The Deutsche Post Case," Discussion Papers of DIW Berlin 1008, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1008
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.357066.de/dp1008.pdf
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    Citations

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    Cited by:

    1. Ronald Bachmann & Thomas K. Bauer & Hanna Kröger, 2012. "Minimum Wages as a Barrier to Entry – Evidence from Germany," Ruhr Economic Papers 0329, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0329 is not listed on IDEAS
    3. Ronald Bachmann & Thomas K. Bauer & Hanna Frings, 2014. "Minimum Wages as a Barrier to Entry: Evidence from Germany," LABOUR, CEIS, vol. 28(3), pages 338-357, September.
    4. Jaag, Christian, 2014. "Postal-sector policy: From monopoly to regulated competition and beyond," Utilities Policy, Elsevier, vol. 31(C), pages 266-277.
    5. Henrik B. Okholm & Anna Möller, 2012. "Liberalization and Postal Workers," Chapters,in: Multi-Modal Competition and the Future of Mail, chapter 18 Edward Elgar Publishing.

    More about this item

    Keywords

    Minimum wages; postal services; collective bargaining; raising rivals' costs;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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