Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies
The instability of Cournot cartels can be overcome by a collective wage agreement if this agreement stipulates minimum fixed wages and piece rates that are legally enforceable. This new view on the institution of collective wage agreements is not only relevant for strategic management, it also has an important implication for economic policy: competition authorities should observe such agreements for their potentially collusive effect on product markets. Moreover, the model contributes to the explanation of the “fixed wage puzzle”, i.e., the observation that firms pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.
|Date of creation:||Feb 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (0391) 67-18 584
Fax: (0391) 67-12 120
Web page: http://www.ww.uni-magdeburg.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nickell, S.J., 1993.
"Competition and Crporate Performance,"
Economics Series Working Papers
99155, University of Oxford, Department of Economics.
- Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
- Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-24, June.
- Hermalin, Benjamin E., 1991.
"The Effects of Competition on Executive Behavior,"
Department of Economics, Working Paper Series
qt7m13v5dd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
- Amable, Bruno & Gatti, Donatella, 2002. "Macroeconomic effects of product market competition in a dynamic efficiency wage model," Economics Letters, Elsevier, vol. 75(1), pages 39-46, March.
- 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.
- 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).
- Schmidt, Klaus M., 1997.
"Managerial Incentives and Product Market Competition,"
Munich Reprints in Economics
19772, University of Munich, Department of Economics.
- Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 191-213, April.
- Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
- Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
- Kuhn, Kai-Uwe, 1994. "Labour Contracts, Product Market Oligopoly, and Involuntary Unemployment," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 366-84, July.
- Glazer, Jacob & Israel, Ronen, 1990. "Managerial incentives and financial signaling in product market competition," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 271-280, June.
- Oriana Bandiera, 2003. "Land Reform, the Market for Protection, and the Origins of the Sicilian Mafia: Theory and Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 218-244, April.
- Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
- Paz Espinosa, Maria & Rhee, Changyong, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 565-88, August.
- Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, vol. 73(2), pages 278-83, May.
- Gary Bornstein & Uri Gneezy, 2002. "Price Competition Between Teams," Experimental Economics, Springer, vol. 5(1), pages 29-38, June.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-40, December.
- Bensaid, Bernard & Gary-Bobo, Robert J., 1991. "Negotiation of profit-sharing contracts in industry," European Economic Review, Elsevier, vol. 35(5), pages 1069-1085, July.
- Gal-Or, Esther, 1995. "Correlated Contracts in Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 75-100, February.
- Stewart, Geoff, 1989. "Profit-sharing in cournot oligopoly," Economics Letters, Elsevier, vol. 31(3), pages 221-224, December.
- Rajesh K. Aggarwal & Andrew A. Samwick, 1999.
"Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence,"
Journal of Finance,
American Finance Association, vol. 54(6), pages 1999-2043, December.
- Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
- Fee, C Edward & Hadlock, Charles J, 2000. "Management Turnover and Product Market Competition: Empirical Evidence from the U.S. Newspaper Industry," The Journal of Business, University of Chicago Press, vol. 73(2), pages 205-43, April.
- Hart, R. A., 1990. "Profit sharing and work sharing," Economics Letters, Elsevier, vol. 34(1), pages 11-14, September.
When requesting a correction, please mention this item's handle: RePEc:mag:wpaper:07004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guido Henkel)
If references are entirely missing, you can add them using this form.