Naylor, Robin Andrew, 1959- (2002) The effects of entry in bilateral oligopoly. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

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.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Oligopolies, Labor unions, Wage bargaining, Collective bargaining, Profit
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	19 April 2002
Number:	No.638
Number of Pages:	24
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	Booth, A. L., 1995. “The economics of trade unions,” CUP, Cambridge. Bughin, J., 1999. The strategic choice of union-oligopoly bargaining agenda. International Journal of Industrial Organisation, 17, 1029-1040. Calmfors, L. and Driffill, J., 1988. Bargaining structure, corporatism and macroeconomic policy, Economic Policy, 6, pp. 13-47. Dowrick, S.J., 1989. Union-oligopoly bargaining. Economic Journal 99, 1123-1142. Horn, H. and Wolinsky, A., 1988. Bilateral monopolies and incentives for merger. Rand Journal of Economics 19, 408-419. Moene, K. O., Wallerstein, M. and Hoel, M., 1993. Bargaining structure and economic performance, in Flanagan, R., Moene, K. O. and Wallerstein, M., (Eds), “Trade union behaviour, pay-bargaining and economic performance,” Clarendon Press, Oxford. Lindbeck, A. and Snower, D., 1988. “The insider-outsider theory of employment and unemployment,” MIT Press, Cambridge, Mass.. Naylor, R. A., 1999. Union wage strategies and international trade. Economic Journal 109, 102-125. Naylor, R. A., 2002. Industry profits and market size under bilateral oligopoly. Economics Letters, forthcoming. Seade, J., 1980a. On the effects of entry, Econometrica 48, pp. 479-489. Seade, J., 1980b. The stability of Cournot revisited. Journal of Economic Theory 23, pp. 15-27. Williamson, O. E., 1968. Wage rates as a barrier to entry: the Pennington case in perspective, Quarterly Journal of Economics, 82, pp. 85-116.
URI:	http://wrap.warwick.ac.uk/id/eprint/1552

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