Efficiency Wages in Cournot-Oligopoly

29 Pages Posted: 10 Jun 2019

See all articles by Marco de Pinto

Marco de Pinto

University of Applied Labour Studies

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

In a Cournot-oligopoly with free but costly entry and business stealing, output per firm is too low and the number of competitors excessive, assuming labor productivity to depend on the number of employees only or to be constant. However, a firm can raise the productivity of its workforce by paying higher wages. We show that such efficiency wages accentuate the distortions occurring in oligopoly. Specifically, excessive entry is aggravated and the welfare loss due to market power rises.

Keywords: oligopoly, efficiency wages, excessive entry, welfare

JEL Classification: D43, J31, L13

Suggested Citation

de Pinto, Marco and Goerke, Laszlo, Efficiency Wages in Cournot-Oligopoly. IZA Discussion Paper No. 12351, Available at SSRN: https://ssrn.com/abstract=3401119

Marco De Pinto (Contact Author)

University of Applied Labour Studies ( email )

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Germany

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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Trier, 54296
Germany

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