Correa López, Mónica and Naylor, Robin Andrew, 1959- (2001) The Cournot-Bertrand profit differential: a reversal result in a differentiated duopoly with wage bargaining. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

This paper compares Cournot and Bertrand equilibria in a downstream differentiated duopoly in which the input price (wage) paid by each downstream firm is the outcome of a strategic bargain with its upstream supplier (labour union). We show that the standard result that Cournot equilibrium profits exceed those under Bertrand competition - when the differentiated duopoly game is played in imperfect substitutes - is reversible. Whether equilibrium profits are higher under Cournot or Bertrand competition is shown to depend upon the nature of the upstream agents’ preferences, on the distribution of bargaining power over the input price and on the degree of product market differentiation. We find that the standard result holds unless unions are both powerful and place considerable weight on the wage argument in their utility function. One implication of this is that if the upstream agents are profit-maximising firms, then the standard result will obtain.

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):	Profit, Profiteering, Labor market, Collective bargaining, Wage differentials
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	5 October 2001
Number:	No.631
Number of Pages:	36
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/1559

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