Price competition and the effects of labour union on process innovation
We provide a new perspective to the literature on innovation in a unionised labour market by considering price competition in the product market. In contrast to the conventional wisdom, suggesting the presence of labour union reduces the incentive for innovation, we show that this view may not hold true if the ?firms compete in prices. We show that the incentive for innovation may be higher in the presence of labour unions if the goods are close substitutes. We also show that whether the incentive for innovation is higher under decentralised labour unions or under a centralised labour union may depend on product substitutability.
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