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Non-rigid wages and merger profitability reversal under convex costs and centralised unionisation

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  • Luciano Fanti
  • Nicola Meccheri

Abstract

Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms' convex costs) and centralised unionisation. Firstly, it is highlighted that a wage "non-rigidity" result applies: the post-merger wage is higher than in the pre-merger equilibrium. Secondly, it is shown that a "reversal result" in relation to merger profitability actually realises when the union is sufficiently oriented towards wages. Moreover, the higher the reservation wage, the degree of product differentiation and the union's relative bargaining power, the higher the probability that merger reduces profits.

Suggested Citation

  • Luciano Fanti & Nicola Meccheri, 2013. "Non-rigid wages and merger profitability reversal under convex costs and centralised unionisation," Discussion Papers 2013/167, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2013/167
    Note: ISSN 2039-1854
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    References listed on IDEAS

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    Cited by:

    1. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, vol. 68(2), pages 157-168.
    2. Luca Gori & Luciano Fanti, 2022. "Endogenous codetermination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 272-285, January.
    3. Luciano Fanti & Domenico Buccella, 2020. "Pareto-Superiority of Corporate Social Responsibility in Unionised Industries," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(2), pages 131-150, December.

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    More about this item

    Keywords

    wage rigidity result; merger profitability; unionised duopoly; convex costs.;
    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
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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