In the context of union-duopoly decentralized bargaining, we argue that, prior to the realization of any employment and production plans, firms and unions may collectively decide about their bargaining agenda. That is, whether they will subsequently negotiate about only wages (“Right-to-Manage”) or about both wages and employment (“Efficient Bargains”). We show that under price competition in the product market the equilibrium bargaining agendas always involve only wages. Under quantity competition, however, and provided that the union bargaining power is low enough, one firm/union pair agrees on Efficient Bargains while the other pair agrees on Right-to-Manage. Thus, if sufficient product differentiation among firms exists, then social welfare can be higher under quantity competition than under price competition; the role of unions is critical for this result.
Review of Industrial Organization – Springer Journals
Published: Feb 1, 2016
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