Wage versus efficient bargaining in oligopoly

Kornelius Kraft
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Kornelius Kraft: University of Dortmund, Department of Economics, Vogelspothsweg 87, D-44227 Dortmund, Denmark, Postal: University of Dortmund, Department of Economics, Vogelspothsweg 87, D-44227 Dortmund, Denmark

Managerial and Decision Economics, 2006, vol. 27, issue 7, pages 595-604

Abstract: This paper combines internal bargaining between firms and their employees with a situation of imperfect competition, in particular a Cournot-oligopoly. Wage bargaining is compared with simultaneous negotiations on wages and employment (efficient bargaining). It turns out that for a large range of parameter values a prisoner's dilemma concerning profits exists. The dominant strategy is efficient bargaining, while the joint profits are maximized with wage negotiations. A simplified example considers economic welfare and utility of the unions. Different welfare measures are considered like the usual IO measure of consumer and producer surplus as well as others. The term 'efficient bargaining' is not justified (at least for the present example) if the profits and the rents of the unions are considered, as these are maximized with wage bargaining. However, consumer and producer surplus are highest with efficient bargaining. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
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