Workers’ skills, product quality and industry equilibrium

Jean Gabszewicz and Alessandro Turrini

No 1997055, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper we develop a model of a vertically differentiated industry where the production of higher quality goods needs a higher fraction of specialized labour. In the first stage, firms choose the quality of their products, in the second, both good prices and skilled workers’ wages are determined. We show that in duopoly, though supplying different variants of the product, firms tend to cluster either at the bottom or at the top of the quality ladder, depending on skilled labour availability. This switch in equilibrium qualities creates a discontinuous behaviour for the wage rate of skilled workers. When the supply of skilled labour is made endogenous, two equilibria are simultaneously possible: one with low-skill, low quality, the other with high-skill, high-quality.

Keywords: Quality competition; strategic effects; endogenous market structure; skills investments; multiple equilibria. (search for similar items in EconPapers)
JEL-codes: D4 J24 L13 L15 (search for similar items in EconPapers)
Date: 1997-08-01
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Workers' skills, product quality and industry equilibrium (2000)
Working Paper: Workers' skills, product quality and industry equilibrium (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1997055

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