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The Effects Of Entry In Bilateral Oligopoly

  • Naylor, Robin

    (University of Warwick)

We show that a firm’s profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by (decentralised) bargaining in unionized bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labor market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labor market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. A corollary of the results derived is that if the upstream agents are firms rather than labor unions, then profits are always decreasing in the number of firms, as in the standard Cournot model. We also show that if bargaining is centralized then there is no wage moderation effect and wages are the same independent of the number of firms, as in the standard model with exogenous factor costs.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp638.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 638.

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Length: 24 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:wrk:warwec:638
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  2. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  3. Dowrick, Steve, 1989. "Union-Oligopoly Bargaining," Economic Journal, Royal Economic Society, vol. 99(398), pages 1123-42, December.
  4. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, vol. 23(1), pages 15-27, August.
  5. Bughin, Jacques, 1999. "The strategic choice of union-oligopoly bargaining agenda," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1029-1040, October.
  6. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
  7. R. Naylor, 2001. "Industry profits and market size under bilateral oligopoly," Working Paper CRENoS 200108, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  8. Moene, K.O. & Wallerstein, M. & Hoel, M., 1992. "Bargaining Structure and Economic Performance," Memorandum 10/1992, Oslo University, Department of Economics.
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