Welfare‐Enhancing Trade Unions in an Oligopoly with Excessive Entry

31 Pages Posted: 29 May 2020

See all articles by Marco de Pinto

Marco de Pinto

International University of Applied Sciences Bad Honnef-Bonn

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

Date Written: January 2020

Abstract

Trade unions are often argued to cause allocative inefficiencies and to lower welfare. We analyze whether this evaluation is also justified in a Cournot‐oligopoly with free but costly entry. If input markets are competitive and output per firm declines with the number of firms (business stealing), there is excessive entry into such oligopoly. If trade unions raise wages above the competitive level, output and profits per firm decline, which could deter entry and thus improve welfare. We find that an increase in the union’s bargaining power raises welfare if the (inverse) demand curve is (sufficiently) concave. We also show that collective bargaining loosens the linkage between business stealing and excessive entry.

Suggested Citation

de Pinto, Marco and Goerke, Laszlo, Welfare‐Enhancing Trade Unions in an Oligopoly with Excessive Entry (January 2020). The Manchester School, Vol. 88, Issue 1, pp. 60-90, 2020, Available at SSRN: https://ssrn.com/abstract=3613944 or http://dx.doi.org/10.1111/manc.12288

Marco De Pinto (Contact Author)

International University of Applied Sciences Bad Honnef-Bonn ( email )

Campus Bad Reichenhall ∙ Zenostr. 6
Bad Reichenhall, 83435
Germany

Laszlo Goerke

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

Behringstraße 21, 7. Floor, Building H
Trier, 54296
Germany

HOME PAGE: http://www.iaaeu.de/

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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