Raising Rivals' Fixed (Labor) Costs: The Deutsche Post Case

Sven Heitzler and Christian Wey

No 1008, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We analyze the bargaining problem of an incumbent firm and a union when the wage contract becomes generally binding. Our main application relates to competition among operators of mail delivery networks. We describe the Deutsche Post case which highlights the raising rivals' costs incentive and its consequences resulting from labor laws that make collective agreements generally binding. We show that minimum wages implemented by means of extension regulation are an effective deterrence instrument which frustrates both market entry as well as investments into the build-up of a mail delivery network.

Keywords: Minimum wages; postal services; collective bargaining; raising rivals' costs (search for similar items in EconPapers)
JEL-codes: J52 K31 L12 (search for similar items in EconPapers)
Pages: 31 p.
Date: 2010
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (10)

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