Differentiated duopoly and horizontal merger profitability under monopoly central union and convex costs

Luciano Fanti and Nicola Meccheri ()

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms' convex production costs) and centralised unionisation in a differentiated duopoly model. It is pointed out that the wage fixed by a monopoly central union in the post-merger case is higher than in the pre-merger/Cournot equilibrium, opening up the possibility that merger reduces profits. Indeed, it is shown that this "reversal result" actually applies when the central union is sufficiently little interested to wages with respect to employment. Moreover, the lower the degree of substitutability between firms' products and the higher the workers' reservation wage, the higher ceteris paribus the probability that profits decrease as a result of the merger.

Keywords: merger profitability; unionised duopoly; convex costs. (search for similar items in EconPapers)
JEL-codes: D43 J50 L13 (search for similar items in EconPapers)
Date: 2012-03-01
New Economics Papers: this item is included in nep-ind and nep-lab
Note: ISSN 2039-1854
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Differentiated Duopoly and Horizontal Merger Profitability under Monopoly Central Union and Convex Costs (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2012/134

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