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The Effects Of Entry In Bilateral Oligopoly

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  • Naylor, Robin

    (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 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.

Suggested Citation

  • Naylor, Robin, 2002. "The Effects Of Entry In Bilateral Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 638, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:638
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Arijit Mukherjee & Laixun Zhao, 2012. "Profitable parallel trade in unionized markets," Journal of Economics, Springer, vol. 107(3), pages 267-276, November.
    2. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
    3. Matsushima, Noriaki & Mizuno, Tomomichi, 2012. "Profit-enhancing competitive pressure in vertically related industries," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 142-152.
    4. Arijit Mukherjee & Laixun Zhao, 2017. "Profit Raising Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 214-219, March.
    5. Mukherjee, Arijit & Wang, Leonard F.S., 2013. "Labour union, entry and consumer welfare," Economics Letters, Elsevier, vol. 120(3), pages 603-605.
    6. Paulo Bastos & Udo Kreickemeier, 2017. "Unions, Competition, and International Trade in General Equilibrium," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 6, pages 143-172, World Scientific Publishing Co. Pte. Ltd..
    7. Ikuo Ishibashi & Noriaki Matsushima, 2006. "Inviting entrants may help incumbent firms," Discussion Papers 2006-46, Kobe University, Graduate School of Business Administration.
    8. Luciano Fanti & Domenico Buccella, 2017. "Profit raising entry effects in network industries with Corporate Social Responsibility," Economics and Business Letters, Oviedo University Press, vol. 6(3), pages 59-68.
    9. Shingo Ishiguro & Laixun Zhao, 2004. "Raising Wages to Deter Entry under Unionization," Discussion Paper Series 155, Research Institute for Economics & Business Administration, Kobe University.
    10. Mukherjee, Arijit, 2019. "Profit raising entry in a vertical structure," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    11. Shingo Ishiguro & Laixun Zhao, 2009. "Raising Wages To Deter Entry Into Unionized Markets," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 435-445, December.
    12. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, vol. 68(2), pages 157-168.
    13. BACCHIEGA, Emanuele, 2004. "Vertical differentiation, wage bargaining and intra-industry trade liberalization," LIDAM Discussion Papers CORE 2004028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Paulo Bastos & Udo Kreickemeier & Peter W. Wright, 2010. "Open‐shop unions and product market competition," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(2), pages 640-662, May.
    15. Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2009. "The welfare effects of entry: the role of the input market," Journal of Economics, Springer, vol. 98(3), pages 189-201, December.
    16. Jiyun Cao & Arijit Mukherjee, 2024. "Foreign Direct Investment and Technology Licensing in a Polluting Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2361-2399, September.

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    More about this item

    Keywords

    Unionized bilateral oligopoly ; wage bargaining ; firm profits;
    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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