Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies

Roland Kirstein and Annette Kirstein

No 7004, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: The instability of Cournot cartels can be overcome by a collective wage agreement if this agreement stipulates minimum fixed wages and piece rates that are legally enforceable. This new view on the institution of collective wage agreements is not only relevant for strategic management, it also has an important implication for economic policy: competition authorities should observe such agreements for their potentially collusive effect on product markets. Moreover, the model contributes to the explanation of the “fixed wage puzzle”, i.e., the observation that firms pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.

Keywords: Piece rate; fixed wage; collective wage agreements (search for similar items in EconPapers)
JEL-codes: C72 C78 D43 J33 J50 K31 L41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2007-02
New Economics Papers: this item is included in nep-bec, nep-com and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies (2004)
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