Publication: Endogenous scope of bargaining in oligopoly
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1996-04
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Abstract
In this paper the scope of firm-union decentralized bargaining is shown to be endogenously determined in industries with market power. We consider a homogenous industry where firms compete in quantities. Efficient Bargains may only occur if both, the firm and its own union, unanimously agree to negotiate over employment as well as wages. Right-to-Manage bargaining takes place, if either the firm or its union choose to bargain only over wages, leaving employment decision at the firm's discretion. We show that Right-to-Manage emerges, as a subgame perfect equilibrium bargaining institution, only if the union's bargaining power is sufficiently high. If, however, the union's bargaining power is low enough, Efficient Bargains is always chosen by a subset of firm/union pairs. A firm/union pair prefers to conduct Efficient Bargains, because the firm can thus commit to a particulary quantity, and hence enjoy a sufficient portion ofthe Stackelberg leader's profits in the product market.
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Scope of Bargaining, Oligopoly, Efficient Bargains, Stackelberg Game