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Entry Threats, and Inefficiency in ‘Efficient Bargaining’

Author

Listed:
  • Rupayan Pal

    (Indira Gandhi Institute of Development Research)

  • Bibhas Saha

Abstract

We examine whether the outcome of bargaining over wage and employment between an incumbent firm and a union remains efficient under entry threat. The workers\' reservation wage is not known to the entrant, and entry is profitable only against the high reservation wage. The entrant observes the pre-entry price, but not necessarily the wage agreements. When wage is not observed, contracts feature over-employment. Under separating equilibrium the low type is over-employed, and under pooling equilibrium the high type is over-employed. But when wage is observed, pooling equilibrium may not always exist, and separating equilibrium does not involve any inefficiency.

Suggested Citation

  • Rupayan Pal & Bibhas Saha, 2010. "Entry Threats, and Inefficiency in ‘Efficient Bargaining’," Labor Economics Working Papers 23020, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:laborw:23020
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    File URL: http://www.eaber.org/node/23020
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    References listed on IDEAS

    as
    1. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    2. Dewatripont, Mathias, 1987. "Entry deterrence under trade unions," European Economic Review, Elsevier, vol. 31(1-2), pages 149-156.
    3. Rupayan Pal & Bibhas Saha, 2006. "Wage Commitment, Signalling, and Entry Deterrence or Accommodation," LABOUR, CEIS, vol. 20(4), pages 625-650, December.
    4. Shingo Ishiguro & Yoshimasa Shirai, 1998. "Entry Deterrence in a Unionized Oligopoly," The Japanese Economic Review, Japanese Economic Association, vol. 49(2), pages 210-221, June.
    5. Mathias Dewatripont, 1988. "The Impact of Trade Unions on Incentives to Deter Entry," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 191-199, Summer.
    6. Rupayan Pal & Bibhas Saha, 2008. "Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing," Journal of Economics, Springer, vol. 95(2), pages 121-147, November.
    7. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    8. 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.
    9. Kazuhiro Ohnishi, 2001. "Lifetime Employment Contract and Strategic Entry Deterrence: Cournot and Bertrand," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 30-43, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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