Sequencing Strategically: Wage Negotiations Under Oligopoly

Abhijit Banerji
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Abhijit Banerji: Delhi School of Economics

No 65, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: In a unionized oligopoly, such as the American automobile industry, should the union (such as the United Auto Workers) negotiate new contracts by bargaining with the firms simultaneously, or should it "strategically sequence" its bargaining partners? This paper analyzes two models of noncooperative bargaining and product market oligopoly. In the first, bargaining is over wages and employment, in the second, it is over wages alone; employment and output are determined by the firms in a post negotiation product market game. One effect of sequencing bargaining partners is present in both scenarios: it allows preexisting contracts at the firms not being currently bargained with to act as "status quo points" that influence the bargaining outcome of the negotiations currently on. The better are the preexisting contracts from the union's point of view, the more attractive is the option of sequencing. In the second model, there is another channel, operating via the post negotiation product market game that tends to make sequencing preferable. By negotiating a relatively high wage with the first firm, the union can raise the profitability of the second firm in the product market game ; consequently, it can get a higher wage there as well, as its share in the incremental revenue that accrues. Moreover, the first firm is less reluctant to concede a higher wage (than under simultaneity) since it knows that the negative impact of that on its profits will be partly alleviated as the second firm will also make a larger concession.

Keywords: Bargaining; Strategic Sequencing; Wage Formation; Oligopoly (search for similar items in EconPapers)
JEL-codes: C7 J52 L13 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1999-05
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