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Profits and Competition in a Unionized Duopoly Model with Product Differentiation and Labour Decreasing Returns

  • Luciano Fanti

    ()

    (Department of Economics, University of Pisa, Italy)

  • Nicola Meccheri

    ()

    (Department of Economics, University of Pisa, Italy)

In this paper, we aim at investigating if the conventional wisdom, that an increase of competition linked to a decrease in the degree of product differentiation always reduces firms’ profits, remains true in a unionized duopoly model with labour decreasing returns. In this context, mixed results emerge. In particular, we show that a decrease in the degree of product differentiation may affect wages, hence profits, differently, depending on both the mode of competition in the product market (Cournot or Bertrand competition) and the particular unionization structure (firm-specific or industry-wide union(s)). Interestingly, it is shown that the conventional wisdom can actually be reversed, even if under Bertrand competition only.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 06_12.

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Date of creation: Feb 2012
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Handle: RePEc:rim:rimwps:06_12
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  1. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.
  2. Iversen, Torben, 1998. "Wage Bargaining, Central Bank Independence, and the Real Effects of Money," International Organization, Cambridge University Press, vol. 52(03), pages 469-504, June.
  3. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  4. Dowrick, Steve & Spencer, Barbara J, 1994. "Union Attitudes to Labor-Saving Innovation: When Are Unions Luddites?," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 316-44, April.
  5. Luciano Fanti & Nicola Meccheri, 2011. "The Cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns," Economics Bulletin, AccessEcon, vol. 31(1), pages 233-244.
  6. Naylor, Robin, 1997. "Union Wage Strategies and International Trade," The Warwick Economics Research Paper Series (TWERPS) 480, University of Warwick, Department of Economics.
  7. John S. Heywood & Matthew Mcginty, 2007. "Convex Costs And The Merger Paradox Revisited," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 342-349, 04.
  8. Petrakis, Emmanuel & Vlassis, Minas, 2000. "Endogenous scope of bargaining in a union-oligopoly model: when will firms and unions bargain over employment?," Labour Economics, Elsevier, vol. 7(3), pages 261-281, May.
  9. Mukherjee, Arijit & Pennings, Enrico, 2011. "Unionization structure, licensing and innovation," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 232-241, March.
  10. Piercarlo Zanchettin, 2006. "Differentiated Duopoly with Asymmetric Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 999-1015, December.
  11. White, Mark D., 1996. "Mixed oligopoly, privatization and subsidization," Economics Letters, Elsevier, vol. 53(2), pages 189-195, November.
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