Entry threats and insufficiency in efficient bargaining

Rupayan Pal and Bibhas Saha

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: We examine whether the outcome of bargaining over wage and employment between an incumbent firm and a union remains efficient under entry threat. The workers\' reservation wage is not known to the entrant, and entry is profitable only against the high reservation wage. The entrant observes the pre-entry price, but not necessarily the wage agreements. When wage is not observed, contracts feature over-employment. Under separating equilibrium the low type is over-employed, and under pooling equilibrium the high type is over-employed. But when wage is observed, pooling equilibrium may not always exist, and separating equilibrium does not involve any inefficiency.

Keywords: Efficient Bargaining; Entry Threat; Signalling; Inefficiency (search for similar items in EconPapers)
JEL-codes: D43 J51 J58 L12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2010-09
New Economics Papers: this item is included in nep-bec, nep-cis, nep-cta and nep-lab
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Related works:
Journal Article: Entry Threats and Inefficiency in ‘Efficient Bargaining’ (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2010-016

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