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The Effects of Entry in Oligopoly with Bargained Wages

Author

Listed:
  • Naylor, Robin A

    (Department of Economics, University of Warwick)

  • Soegaard, Christian

    (Department of Economics, University of Warwick)

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 unionised 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 labour market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labour market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. An incumbent monopolist will have an incentive to accommodate entry if the labour market effect dominates. We also show that this incentive is stronger if the incumbent anticipates that, post entry, it will be able to act as a Stackelberg leader. JEL classification: D43 ; J50 ; L13

Suggested Citation

  • Naylor, Robin A & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS) 1044, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1044
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    References listed on IDEAS

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    1. Rajeev K. Tyagi, 1999. "On the Effects of Downstream Entry," Management Science, INFORMS, vol. 45(1), pages 59-73, January.
    2. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-125, January.
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    Cited by:

    1. Naylor, Robin & Soegaard, Christian, 2018. "The Effects of Entry in Oligopolistic Trade with Bargained Input Prices," Economic Research Papers 269084, University of Warwick - Department of Economics.
    2. Marco de Pinto & Laszlo Goerke, 2020. "Welfare‐enhancing Trade Unions in an Oligopoly with Excessive Entry," Manchester School, University of Manchester, vol. 88(1), pages 60-90, January.
    3. Robin Naylor & Christian Soegaard, 2022. "Profit‐raising entry under oligopolistic trade with endogenous input prices," The World Economy, Wiley Blackwell, vol. 45(7), pages 2135-2164, July.
    4. Luciano Fanti, 2016. "Interlocking cross-ownership in a unionised duopoly: when social welfare benefits from “more collusion”," Journal of Economics, Springer, vol. 119(1), pages 47-63, September.

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    More about this item

    Keywords

    Oligopoly ; wage bargaining ; profits and entry;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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