The Effects of Entry in Oligopoly with Bargained Wages

Robin A Naylor and Christian Soegaard
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Robin A Naylor: Department of Economics, University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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

Keywords: Oligopoly; wage bargaining; profits and entry (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-ger and nep-ind
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Citations: View citations in EconPapers (5)

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Working Paper: The Effects of Entry in Oligopoly with Bargained Wages (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1044

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