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Welfare-Enhancing Trade Unions in an Oligopoly with Excessive Entry

Author

Listed:
  • Marco de Pinto

    () (Institute for Labour Law and Industrial Relations in the EU, University of Trier)

  • Laszlo Goerke

    () (Institute for Labour Law and Industrial Relations in the EU, University of Trier)

Abstract

If input markets are competitive and output per firm declines with the number of firms (business stealing effect), there will be excessive entry into a Cournot oligopoly for a homogeneous commodity. However, input markets are often imperfectly competitive and the price of labor is determined by collective bargaining. The resulting rise in wages reduces output and profits and can deter entry. We analyze under which conditions greater bargaining power by the trade union reduces entry and raises welfare. Furthermore, we show that collective bargaining loosens the linkage between business stealing and excessive entry.

Suggested Citation

  • Marco de Pinto & Laszlo Goerke, 2016. "Welfare-Enhancing Trade Unions in an Oligopoly with Excessive Entry," IAAEU Discussion Papers 201603, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  • Handle: RePEc:iaa:dpaper:201603
    as

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    References listed on IDEAS

    as
    1. Svejnar, Jan, 1986. "Bargaining Power, Fear of Disagreement, and Wage Settlements: Theory and Evidence from U.S. Industry," Econometrica, Econometric Society, vol. 54(5), pages 1055-1078, September.
    2. Capuano, Stella & Hauptmann, Andreas & Schmerer, Hans-Jörg, 2014. "Trade and unions: Can exporters benefit from collective bargaining?," IAB Discussion Paper 201424, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Langenmayr, Dominika & Haufler, Andreas & Bauer, Christian J., 2015. "Should tax policy favor high- or low-productivity firms?," European Economic Review, Elsevier, vol. 73(C), pages 18-34.
    4. Naylor, Robin A & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS) 1044, University of Warwick, Department of Economics.
    5. Arghya Ghosh & Hodaka Morita, 2007. "Free entry and social efficiency under vertical oligopoly," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 541-554, June.
    6. Dewatripont, Mathias, 1987. "Entry deterrence under trade unions," European Economic Review, Elsevier, vol. 31(1-2), pages 149-156.
    7. Oswald, Andrew J, 1982. "Trade Unions, Wages and Unemployment: What Can Simple Models Tell Us?," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 526-545, November.
    8. Haucap, Justus & Pauly, Uwe & Wey, Christian, 2001. "Collective wage setting when wages are generally binding An antitrust perspective," International Review of Law and Economics, Elsevier, vol. 21(3), pages 287-307, September.
    9. Shingo Ishiguro & Laixun Zhao, 2004. "Raising Wages to Deter Entry under Unionization," Discussion Paper Series 155, Research Institute for Economics & Business Administration, Kobe University.
    10. Besley, Timothy, 1989. "Commodity taxation and imperfect competition : A note on the effects of entry," Journal of Public Economics, Elsevier, vol. 40(3), pages 359-367, December.
    11. Shingo Ishiguro & Laixun Zhao, 2009. "Raising Wages To Deter Entry Into Unionized Markets," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 435-445.
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    More about this item

    Keywords

    Endogenous Entry; Oligopoly; Trade Unions; Wage Bargaining; Welfare;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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