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Welfare effects of cross-ownership in a unionised duopoly

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  • Luciano Fanti

Abstract

The present study analyses the effects of an increase in the share of crossownership in a Cournot duopoly with firm-specific monopolistic unions. Since the cross-participation at ownership level implies a lower degree of competition, then in a duopoly without unions, as expected, consumer surplus and social welfare, despite the increase in the industry profits, reduces when cross-participation increases. By contrast, when the labour market is unionised, we show the counterintuitive result, that despite the degree of competition is reduced by cross-ownership, both consumer surplus and social welfare increase with the share of cross-participation. This always occurs provided that unions are sufficiently wage-oriented. Therefore, the policy implication is that, when wage-interested unions are in existence in oligopoly industries, a rise in cross-participation - i.e., a lower degree of competition - is socially preferred. Moreover, all agents (firm's owner, workers and consumers) agree for the highest possible level of cross-participation.

Suggested Citation

  • Luciano Fanti, 2011. "Welfare effects of cross-ownership in a unionised duopoly," Discussion Papers 2011/125, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2011/125
    Note: ISSN 2039-1854
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    1. Fanti, Luciano, 2016. "Social welfare and cross-ownership in a vertical industry: When the mode of competition matters for antitrust policy," Japan and the World Economy, Elsevier, vol. 37, pages 8-16.
    2. Fanti, Luciano, 2013. "Cross-ownership and unions in a Cournot duopoly: When profits reduce with horizontal product differentiation," Japan and the World Economy, Elsevier, vol. 27(C), pages 34-40.
    3. Fanti, Luciano & Buccella, Domenico, 2016. "Passive unilateral cross-ownership and strategic trade policy," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW), vol. 10, pages 1-22.
    4. Buccella Domenico, 2019. "A Simple Model for the Integration of Goods and the Capital Market with Unionized Labor Markets," Ekonomika (Economics), Sciendo, vol. 98(1), pages 19-37, June.
    5. Luciano Fanti & Domenico Buccella, 2021. "Strategic trade policy with interlocking cross-ownership," Journal of Economics, Springer, vol. 134(2), pages 147-174, October.
    6. Domenico Buccella, 2015. "Unionized duopoly, market competition with differentiated products, and welfare," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(4), pages 455-473, December.
    7. Shi, Yuan & Wang, Xinhua & Gao, Hongwei, 2021. "Profit formulation and equilibrium strategy of firms with cross-shareholding," Finance Research Letters, Elsevier, vol. 38(C).

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    More about this item

    Keywords

    Cross-ownership; Duopoly; Unions ; Social Welfare.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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