Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies

Prof. Dr. Roland Kirstein and Annette Kirstein
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Annette Kirstein: Universität Karlsruhe

No 2005-1-1129, German Working Papers in Law and Economics from Berkeley Electronic Press

Abstract: The need for intra-firm incentive schemes allows remodeling the Cournot duopoly in wages (rather than in output levels). In both versions of the Cournot model, a cartel agreement is unstable. The new formulation, however, allows us to demonstrate that a collective wage agreement on minimum wages can stabilize the cartel solution. Beyond its relevance for strategic management, this result has a policy implication: competition authorities should observe collective wage agreements for their potential collusive effect on product markets. Moreover, the model may provide a new explanation why firms in reality pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.

Keywords: Principal-agent theory; piece rate; fixed wage; collective wage agreements; Nash bargaining solution. (search for similar items in EconPapers)
JEL-codes: C72 C78 D43 J33 J50 K31 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-lab and nep-mic
Note: oai:bepress:gwp-1129
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Related works:
Working Paper: Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies (2007)
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