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Union-Oligopoly Bargaining and Entry Deterrence:A Reassessment of Limit Pricing

  • Rupayan Pal


  • Bibhas Saha


This paper introduces wage bargaining in the framework of Milgrom and Roberts where the workers' reservation wage is the relevant information parameter critical for entry. The authors show that entry threat signi cantly distorts the wage, which in turn adversely a ects the rm's ability to signal through price. Consequently, the separating equilibrium (in price) does not always exist. Instead, the authors get a semi-separating equilibrium. Pooling equilibrium may not also exist. If, however, wage agreements can be made public, signalling occurs with or without distortions in the full information wages. Pooling equilibrium in wage also exists. The paper also examines whether wage or price is the preferred signalling device, and whether wage agreements should be made public or not. [WP no. 14].

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Paper provided by eSocialSciences in its series Working Papers with number id:1375.

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Date of creation: Feb 2008
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Handle: RePEc:ess:wpaper:id:1375
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  1. Peter C. Cramton & Morley Gunderson & Joseph S. Tracy, 1995. "The Effect of Collective Bargaining Legislation on Strikes and Wages," NBER Working Papers 5105, National Bureau of Economic Research, Inc.
  2. Joerg Lingens, 2007. "Timing is Everything - The Labour Market Effects of Union Wage Bargaining," Economics Bulletin, AccessEcon, vol. 10(5), pages 1-11.
  3. Albaek, Svend & Overgaard, Per Baltzer, 1994. "Advertising and pricing to deter or accommodate entry when demand is unknown: Comment," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 83-87, March.
  4. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
  5. Bentolila, Samuel & Dolado, Juan J. & Padilla, Atilano Jorge, 1994. "Wage Bargaining in Industries with Market Power," CEPR Discussion Papers 987, C.E.P.R. Discussion Papers.
  6. Kim Jeong-Yoo, 2003. "Signal Jamming in Games with Multiple Senders," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-20, November.
  7. Kyle Bagwell & Garey Ramey, 1987. "Advertising and Limit Pricing," Discussion Papers 729, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Vannetelbosch, Vincent J., 1997. "Wage bargaining with incomplete information in an unionized Cournot oligopoly," European Journal of Political Economy, Elsevier, vol. 13(2), pages 353-374, May.
  9. Mathias Dewatripont, 1988. "Commitment through Renegotiation-Proof Contracts with Third Parties," ULB Institutional Repository 2013/175990, ULB -- Universite Libre de Bruxelles.
  10. Rupayan Pal & Bibhas Saha, 2006. "Wage Commitment, Signalling, and Entry Deterrence or Accommodation," LABOUR, CEIS, vol. 20(4), pages 625-650, December.
  11. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
  12. Aronsson, Thomas & Lofgren, Karl-Gustaf & Wikstrom, Magnus, 1993. "Monopoly union versus efficient bargaining : Wage and employment determination in the Swedish construction sector," European Journal of Political Economy, Elsevier, vol. 9(3), pages 357-370, August.
  13. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  14. Clask, A. & Oswald, A., 1992. "Trade Union Utility Functions: A survey of Union Leaders' Views," Economics Series Working Papers 99132, University of Oxford, Department of Economics.
  15. Schultz, Christian, 1999. "Limit pricing when incumbents have conflicting interests," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 801-825, August.
  16. Dowrick, Steve, 1989. "Union-Oligopoly Bargaining," Economic Journal, Royal Economic Society, vol. 99(398), pages 1123-42, December.
  17. Laurent Linnemer, 1998. "Entry Deterrence, Product Quality: Price and Advertising as Signals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 615-645, December.
  18. Martin, Stephen, 1995. "Oligopoly limit pricing: Strategic substitutes, strategic complements," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 41-65, March.
  19. Ohnishi, Kazuhiro, 2001. "Lifetime Employment Contract and Strategic Entry Deterrence: Cournot and Bertrand," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 30-43, March.
  20. Dewatripont, Mathias, 1987. "Entry deterrence under trade unions," European Economic Review, Elsevier, vol. 31(1-2), pages 149-156.
  21. Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
  22. Church, Jeffrey & Ware, Roger, 1996. "Delegation, market share and the limit price in sequential entry models," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 575-609, July.
  23. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  24. Kraft, Kornelius, 1998. "The codetermined firm in oligopoly," Economics Letters, Elsevier, vol. 61(2), pages 195-201, November.
  25. repec:ebl:ecbull:v:10:y:2007:i:5:p:1-11 is not listed on IDEAS
  26. Bughin, Jacques, 1999. "The strategic choice of union-oligopoly bargaining agenda," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1029-1040, October.
  27. Sudipa Majumdar & Bibhas Saha, 1998. "Job security, wage bargaining and duopoly outcomes," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(4), pages 389-403.
  28. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 551-592, April.
  29. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
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