The Effects of Entry in Bilateral Oligopoly

Economics

Speaker:Christian Soegaard, University of Warwick
Date: Friday 25 October 2013
Time: 16.15 - 17.45
Location: Bateman Lecture Theatre, Building One, Streatham Campus

Further details

We show that a firm's profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by (decentralised) bargaining in unionised bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labour market rivalry which induces (profit-enhancing) wage moderation, a result which does not occur if unions can coordinate their wage demands under centralised bargaining. Whether the product or labour market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. In an extension of the basic Cournot model, we also show that if a firm has a first-mover advantage in the Stackelberg sense, the positive effects of entry are greater. A corollary of the results derived is that if the upstream agents are firms rather than labour unions, then profits are always decreasing in the number of firms, as in the standard Cournot model.