Wage Commitment, Signalling, and Entry Deterrence or Accommodation

Rupayan Pal and Bibhas Saha

LABOUR, 2006, vol. 20, issue 4, 625-650

Abstract: Abstract. We analyse the wage choice of a monopoly union against entry threat. The wage carries information about market demand, which is crucial to an uninformed entrant, and in addition affects the entrant's post‐entry cost through labour market institutions. The union may wish to deter or accommodate entry depending on whether the entrant will hire from a different source or from the union. Equilibrium wage is distorted downwardly (upwardly) for deterrence (accommodation); but because of wage correlation a low (high) wage can also turn entry profitable (unprofitable). Therefore, separating equilibrium may not always exist, and entry outcomes may be inefficient.

Date: 2006
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