To be (unionized) or not to be? A case for cost-raising strategies under Cournot oligopoly

Abstract

This paper analyses the decision by firms under Cournot oligopoly as to recognize unions in order to gain market power despite higher costs. Considering classical models of union–firm bargaining, namely right-to-manage (RTM) and efficient bargaining (EB), we show that, for a sufficiently low level of union power EB firms might adopt cost-raising strategies. This theoretical prediction is compatible with some empirical evidence in favour of EB, and adds to the theoretical finding that EB might dominate RTM under unionized Cournot–Nash oligopoly. It also suggests closer antitrust scrutiny as whether unions can provide cartel-like services to oligopoly firms, allowing them to distort product market competition at the expense of consumers.