Endogenous quality choice under upstream market power

Borja Mesa-Sánchez

International Journal of Economic Theory, 2015, vol. 11, issue 3, 265-294

Abstract: type="main" xml:lang="en">

This paper analyzes the interplay between endogenous quality choice and the market power of trade unions. In a unionized duopoly downstream firms face a trade-off. They choose either to differentiate production to relax final market competition (this pushes wages up), or to reduce it to induce a fiercer upstream competition (pushing wages down). In this way, the degree of product differentiation becomes a valuable tool for downstream firms. When upstream market power is weak, downstream firms do not care about wages and differentiate their products. But as soon as unions’ bargaining power increases, wages also increase and downstream firms choose less quality differentiation to reduce them. Thus, the higher the bargaining power of trade unions, the lower the quality gap. This result emerges more strongly when downstream firms merge, and it is robust to the type of competition and the nature of costs.

Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/ (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Endogenous quality choice under upstream market power (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:11:y:2015:i:3:p:265-294

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1742-7355

Access Statistics for this article

International Journal of Economic Theory is currently edited by Kazuo Nishimura and Makoto Yano

More articles in International Journal of Economic Theory from The International Society for Economic Theory
Bibliographic data for series maintained by Wiley Content Delivery ().