Raising Wages to Deter Entry under Unionization
This paper investigates the strategic effects of new entry into product markets in a unionized oligopoly where entry and wage negotiations are sequential. When both a domestic incumbent and a foreign entrant hire unionized workers, the incumbent has incentives to raise the wage, because a higher wage strengthens the bargaining position of the union relative to the entrant at subsequent negotiations when entry occurs. Such a high wage offer may then discourage the potential entrant to enter the market. We also extend the model to allow the foreign entrant to supply the good to the domestic market either by foreign direct investment (FDI) or exports. Under FDI the entrant must negotiate with the domestic union over wages, while under exports it needs not. We show that surprisingly the incumbent can obtain higher profits when the entrant has both options of FDI and export than when it has only the former option.
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- 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.
- Mathias Dewatripont, 1988. "The impact of trade unions on incentives to deter entry," ULB Institutional Repository 2013/9571, ULB -- Universite Libre de Bruxelles.
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"The Role of Investment in Entry-Deterrence,"
The Warwick Economics Research Paper Series (TWERPS)
140, University of Warwick, Department of Economics.
- Naylor, Robin, 2002. "The Effects Of Entry In Bilateral Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 638, University of Warwick, Department of Economics.
- Mathias Dewatripont, 1987.
"Entry deterrence under trade unions,"
ULB Institutional Repository
2013/9565, ULB -- Universite Libre de Bruxelles.
- Justus Haucap & Uwe Pauly & Christian Wey, 2000.
"Collective Wage Setting When Wages Are Generally Binding: An Antitrust Perspective,"
CIG Working Papers
FS IV 00-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- 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.
- B. Curtis Eaton & Richard G. Lipsey, 1980. "Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 721-729, Autumn.
- Mezzetti, Claudio & Dinopoulos, Elias, 1991.
"Domestic unionization and import competition,"
Journal of International Economics,
Elsevier, vol. 31(1-2), pages 79-100, August.
- Gollier, Christian, 1991. "Wage Differentials, the Insider-Outsider Dilemma, and Entry-Deterrence," Oxford Economic Papers, Oxford University Press, vol. 43(3), pages 391-408, July.
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