Abstract
It is believed that cooperation between the final goods producers hurts consumers and reduces social welfare but increases profits. We show that these results may not hold in the presence of a unionized labor market. The effects of product market cooperation on consumers, profits and social welfare may depend on the union’s disagreement utility, its bargaining power and the degree of product market cooperation.
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Notes
An important factor that differentiates national unionization structures is the degree of wage setting centralization (Flanagan 1999 and Wallerstein 1999). An industry-wide wage setting is more relevant in Germany and Scandinavia, while firm-specific wage setting is more relevant in Japan and North America. Iversen (1998) shows an index of centralization of wage bargaining in different countries.
The “efficient bargaining” model, which stipulates that the firms and unions bargain over wages and employment, is an alternative to the right-to-manage model. See, Layard et al. (1991) for arguments in favor of right-to-manage models.
We ignore the case of λ = 1 to avoid indeterminacy in our maximization problem, since, in this situation, the firms may prefer to shutdown one plant. The case of λ = 1 should be considered separately.
If α = 1, the equilibrium wages are independent of λ.
We use ‘The Mathematica 4’ (see Wolfram 1999) for the figures of this paper.
If α = 1, the equilibrium wages are independent of λ.
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I thank an anonymous referee for helpful comments and suggestions. The usual disclaimer applies.
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Mukherjee, A. Product Market Cooperation, Profits and Welfare in the Presence of Labor Union. J Ind Compet Trade 10, 151–160 (2010). https://doi.org/10.1007/s10842-009-0063-4
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DOI: https://doi.org/10.1007/s10842-009-0063-4