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Firm profits and the number of firms under unionised oligopoly

Naylor, Robin (2001) Firm profits and the number of firms under unionised oligopoly. Working Paper. CRENoS.


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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 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 price or wage effect dominates depends on the extent of union bargaining power and the nature of union preferences. 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. A corollary of the results derived is that if the upstream agents are firms rather than labour unions, then profits are always decreasing in the number of firms, as in the standard Cournot model.

Item Type:Technical Report / Working Paper / Project Report (Working Paper)
Institution:Universita' degli Studi di Cagliari
Divisions:Centri > CRENoS Centro Ricerche Economiche Nord Sud
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Uncontrolled Keywords:Cournot oligopoly, Unionised oligopoly, Wage bargaining, Firm profits
ID Code:299
Deposited On:12 Nov 2008 10:45

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