Raising Wages to Deter Entry under Unionization

Shingo Ishiguro and Laixun Zhao

No 155, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This paper investigates the strategic effects of new entry into product markets in a unionized oligopoly where entry and wage negotiations are sequential. When both a domestic incumbent and a foreign entrant hire unionized workers, the incumbent has incentives to raise the wage, because a higher wage strengthens the bargaining position of the union relative to the entrant at subsequent negotiations when entry occurs. Such a high wage offer may then discourage the potential entrant to enter the market. We also extend the model to allow the foreign entrant to supply the good to the domestic market either by foreign direct investment (FDI) or exports. Under FDI the entrant must negotiate with the domestic union over wages, while under exports it needs not. We show that surprisingly the incumbent can obtain higher profits when the entrant has both options of FDI and export than when it has only the former option.

Keywords: Foreign Direct Investment; Unionized Oligopoly; Wage Contracts; Entry Deterrence (search for similar items in EconPapers)
JEL-codes: D43 F12 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp155.pdf First version, 2004 (application/pdf)

Related works:
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:kob:dpaper:155

Access Statistics for this paper

More papers in Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University 2-1 Rokkodai, Nada, Kobe 657-8501 JAPAN. Contact information at EDIRC.
Bibliographic data for series maintained by Office of Promoting Research Collaboration, Research Institute for Economics & Business Administration, Kobe University ().