Prague Economic Papers 2017, 26(2):170-187 | DOI: 10.18267/j.pep.602

(Local) Wage Settings and (International) Entry Deterrence

Domenico Buccella
Department of Economics, Kozminski University, Warsaw, Poland (buccella@kozminski.edu.pl)

The present paper investigates the use of national wage settings as a mechanism to deter entry via foreign direct investment (FDI) in a unionized monopoly industry. A union which sets centralized wages in a multi-unit firm can both decentralize and change the agenda to prevent the market entry of a non-unionized firm. The adoption of the efficient bargaining agenda is especially effective to deter entry because it lowers the fixed-cost threshold the entrant can bear. Moreover, through side-payments, the incumbent and the union can have common interests in modifying the wage setting to reach outcomes that is Pareto-superior to duopoly. However, if the union cedes "too much power" and becomes "too weak", internal conflicts with the incumbent firm may arise.

Keywords: labour unions, oligopoly, market entry
JEL classification: J51, L13, L22

Prepublished online: September 8, 2016; Published: April 1, 2017  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Buccella, D. (2017). (Local) Wage Settings and (International) Entry Deterrence. Prague Economic Papers, 26(2), 170-187. doi: 10.18267/j.pep.602
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Banerji, A. (2002). Sequencing Strategically: Wage Negotiations under Oligopoly. International Journal of Industrial Organization, 20(7), 1037-1058, http://dx.doi.org/10.1016/s0167-7187(01)00056-x Go to original source...
    2. Bárcena-Ruiz, J.C., Garzón, M.B. (2002). The Organization of Wage Bargaining in Divisionalised Firms. Australian Economic Papers, 41(3), 305-319, http://dx.doi.org/10.1111/1467-8454.00166 Go to original source...
    3. Borghijs, A. (2001). Does Product Market Integration Lead to European Wage-Setting? University of Antwerp (UFSIA-RUCA) Faculty of Applied Economics, Research Paper 2001-001.
    4. Borghijs, A., Du Caju, P. (1999). Globalisation, EMU and European Trade Union Cooperation. University of Antwerp (UFSIA) Department of Economics, Research Paper 99-013.
    5. Buccella, D. (2011). Corrigendum to "The Strategic Choice of Union-Oligopoly Bargaining Agenda" [Int. J. Ind. Organ. 17 (1999) 1029-1040]. International Journal of Industrial Organization, 29(6), 690-693, http://dx.doi.org/10.1016/j.ijindorg.2011.03.003 Go to original source...
    6. _________ (2013a). Unions' Bargaining Coordination in Multi-Unit Firms. Economics Bulletin, 33(1), 217-225.
    7. _________ (2013b). Unions' Bargaining Coordination in Multinational Enterprises. SERIEs, 4(4), 373-392, http://dx.doi.org/10.1007/s13209-013-0097-z Go to original source...
    8. Buccella, D., Fanti, L. (2015). On the Strategic Choice of Union-Oligopoly Bargaining Agenda: Further Results. Economics Research International, 2015, 1-7, http://dx.doi.org/10.1155/2015/530890 Go to original source...
    9. Bughin, J. (1995). Bargaining over Employment as a Firm Strategic Choice. Review of Industrial Organization, 10(6), 723-735, http://dx.doi.org/10.1007/bf01024304 Go to original source...
    10. ________ (1996). Trade Unions and Firms' Product Market Power. The Journal of Industrial Economics, 44(3), 289-307, http://dx.doi.org/10.2307/2950498 Go to original source...
    11. ________ (1999). The Strategic Choice of Union-Oligopoly Bargaining Agenda. International Journal of Industrial Organization, 17(7), 1029-1040, http://dx.doi.org/10.1016/s0167-7187(97)00071-4 Go to original source...
    12. Bughin, J., Vannini, S. (1995). Strategic Direct Investment under Unionized Oligopoly. International Journal of Industrial Organization, 13(1), 127-145, http://dx.doi.org/10.1016/0167-7187(94)00447-a Go to original source...
    13. Davidson, C. (1988). Multiunit Bargaining in Oligopolistic Industries. Journal of Labor Economics, 6(3), 397-422, http://dx.doi.org/10.1086/298189 Go to original source...
    14. De Fraja, G. (1993). Staggered vs. Synchronised Wage Setting in Oligopoly. European Economic Review, 37(8), 1507-1522, http://dx.doi.org/10.1016/0014-2921(93)90119-u Go to original source...
    15. Dobson, P. W. (1994). Multifirm Unions and the Incentive to Adopt Pattern Bargaining in Oligopoly. European Economic Review, 38(1), 87-100, http://dx.doi.org/10.1016/0014-2921(94)90007-8 Go to original source...
    16. _________ (1997). Union-Firm Interaction and the Right to Manage. Bulletin of Economic Research, 49(3), 213-229, http://dx.doi.org/10.1111/1467-8586.00037 Go to original source...
    17. Dowrick, S. J. (1989). Union-Oligopoly Bargaining. Economic Journal, 99(398), 1123-1142, http://dx.doi.org/10.2307/2234092 Go to original source...
    18. Dunlop, J. (1944). Wage Determination under Trade Unions, New York: Macmillan.
    19. Espinosa, M., Rhee, S. (1989). Efficient Wage Bargaining as a Repeated Game. Quarterly Journal of Economics, 104(3), 565-588, http://dx.doi.org/10.2307/2937811 Go to original source...
    20. European Foundation for the Improvement of Living and Working Conditions (Eurofound) (2009). Multinational Companies and Collective Bargaining. Dublin: Eurofund. Available online at http://www.eurofound.europa.eu/eiro/studies/tn0904049s/tn0904049s.htm
    21. Fanti, L., Buccella, D. (2015). Bargaining Agenda, Timing, and Entry. MPRA Working Paper Series No. 64089. Go to original source...
    22. Fanti, L., Gori, L. (2013). Efficient Bargaining versus Right to Manage: A Stability Analysis in a Cournot Duopoly with Trade Unions. Economic Modelling, 30, 205-211, http://dx.doi.org/10.1016/j.econmod.2012.09.010 Go to original source...
    23. Fanti, L., Meccheri, N. (2011). The Cournot-Bertrand Profit Differential in a Differentiated Duopoly with Unions and Labour Decreasing Returns. Economics Bulletin, 31(1), 233-244. Available at: http://econpapers.repec.org/article/eblecbull/eb-10-00692.htm
    24. _________ (2012). Labour Decreasing Returns, Industry-Wide Union and Cournot-Bertrand Profit Ranking. A Note. Economics Bulletin, 32(1), 894-904. Available at: http://econpapers.repec.org/article/eblecbull/eb-11-00841.htm
    25. _________ (2014). Profits and Competition under Alternative Technologies in a Unionized Duopoly with Product Differentiation. Research in Economics, 68(2), 157-168, http://dx.doi.org/10.1016/j.rie.2014.02.001 Go to original source...
    26. Haucap, J. Wey, C. (2004). Unionisation Structure and Innovation Incentives. Economic Journal, 114(494), 149-165, http://dx.doi.org/10.1111/j.0013-0133.2004.00203.x Go to original source...
    27. Horn, H., Wolinsky, A. (1988a). Worker Substitutability and Patterns of Unionisation. Economic Journal, 98(391), 484-497, http://dx.doi.org/10.2307/2233379 Go to original source...
    28. _________ (1988b). Bilateral Monopolies and Incentives for Merger. RAND Journal of Economics, 19(3), 408-419, http://dx.doi.org/10.2307/2555664 Go to original source...
    29. Kraft, K. (2006). Wage versus Efficient Bargaining in Oligopoly. Managerial and Decision Economics, 27(7), 595-604, http://dx.doi.org/10.1002/mde.1277 Go to original source...
    30. Lommerud, K. E., Straume, O. R., Sørgard, L. (2005). Downstream Merger with Upstream Market Power. European Economic Review, 49(3), 717-743, http://dx.doi.org/10.1016/s0014-2921(03)00068-0 Go to original source...
    31. López, M. C., Naylor, R. A. (2004). The Cournot-Bertrand Profit Differential: A Reversal Result in a Differentiated Duopoly with Wage Bargaining. European Economic Review, 48(3), 681-696, http://dx.doi.org/10.1016/s0014-2921(02)00326-4 Go to original source...
    32. McDonald, I. M., Solow, R. (1981). Wage Bargaining and Employment. American Economic Review, 71(5), 896-908.
    33. Mukherjee, A. (2010). Product Market Cooperation, Profits and Welfare in the Presence of Labor Union. Journal of Industry, Competition and Trade, 10(2), 151-160, http://dx.doi.org/10.1007/s10842-009-0063-4 Go to original source...
    34. Mukherjee, A., Pennings, E. (2011). Unionization Structure, Licensing and Innovation. International Journal of Industrial Organization, 29(2), 232-241, http://dx.doi.org/10.1016/j.ijindorg.2010.06.001 Go to original source...
    35. Naylor, R. (2002). Industry Profits and Competition under Bilateral Oligopoly. Economic Letters, 77(2), 169-175, http://dx.doi.org/10.1016/s0165-1765(02)00107-6 Go to original source...
    36. _________ (1998). International Trade and Economic Integration when Labour Markets Are Generally Unionised. European Economic Review, 42(7), 1251-1267, http://dx.doi.org/10.1016/s0014-2921(97)00075-5 Go to original source...
    37. _________ (1999). Union Wage Strategies and International Trade. The Economic Journal, 109(452), 102-115, http://dx.doi.org/10.1111/1468-0297.00394 Go to original source...
    38. Nickell, S., Andrews, M. (1983). Unions, Real Wages and Employment in Britain 1951-79. Oxford Economic Papers, 35, 183-206. Available at: http://econpapers.repec.org/article/oupoxecpp/v_3a35_3ay_3a1983_3ai_3a0_3ap_3a183-206.htm Go to original source...
    39. Petrakis, E., Vlassis, M. (2000). Endogenous Scope of Bargaining in a Union-Oligopoly Model: When Will Firms and Unions Bargain over Employment? Labour Economics, 7(3), 261-281, http://dx.doi.org/10.1016/s0927-5371(99)00043-3 Go to original source...
    40. _________ (2004). Endogenous Wage-Bargaining Institutions in Oligopolistic Industries. Economic Theory, 24(1), 55-73, http://dx.doi.org/10.1007/s00199-003-0410-3 Go to original source...
    41. Reuters.com (2012). U.S. Unions Disappointed with Airbus Alabama Location. Reuters.com. Available at http://www.reuters.com/article/2012/07/03/us-airbus-alabama-unions-idUSBRE8611HH20120703
    42. ___________ (2013). German Union's Incoming Boss Warns VW about Avoiding Unions. Reuters.com. Available at http://uk.reuters.com/article/2013/11/13/autos-igmetall-vw-idUKL2N0IY1LU20131113
    43. ___________ (2015). U.S. Autoworkers Face Threat as Car Makers Drawn to Mexico. Reuters.com. Available at http://www.reuters.com/article/2015/03/25/autos-uaw-mexico-idUSL2N0WR1KX20150325
    44. Symeonidis, G. (2008). Downstream Competition, Bargaining, and Welfare. Journal of Economics and Management Strategy, 17(1), 247-270, http://dx.doi.org/10.1111/j.1530-9134.2008.00177.x Go to original source...
    45. ___________ (2010). Downstream Merger and Welfare in a Bilateral Oligopoly. International Journal of Industrial Organization, 28(3), 230-243, http://dx.doi.org/10.1016/j.ijindorg.2009.08.004 Go to original source...
    46. Vannini, S., Bughin, J. (2000). To Be (Unionized) or Not to Be? A Case for Cost-Raising Strategies under Cournot Oligopoly. European Economic Review, 44(9), 1763-1981, http://dx.doi.org/10.1016/s0014-2921(99)00024-0 Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content