Abstract
We investigate the welfare effect of union activity in a relatively new oligopoly model, the Cournot-Bertrand model, where one firm competes in output (a la Cournot) and the other firm competes in price (a la Bertrand). The Nash equilibrium prices, outputs, and profits are quite diverse in this model, with the competitive advantage going to the Cournot-type competitor. A comparison of the results from the Cournot-Bertrand model with those found in the traditional Cournot and Bertrand models reveals that firms and the union have a different preference ordering over labor market bargaining. These differences help explain why the empirical evidence does not support any one model of union bargaining. We also examine the welfare and policy implications of union activity in a Cournot-Bertrand setting.
Highlights
Union membership in the United States has steadily declined since its peak in the 1950s
In order for policymakers to weigh the costs of inefficiencies that can be created by unions against concerns for equity and redistribution, it is important to understand the differential impact of union power in various market structures
We investigate the effect of union activity in duopoly markets and the conditions under which union power has the greatest impact on allocative efficiency
Summary
Union membership in the United States has steadily declined since its peak in the 1950s. The EB model of union behavior was developed In this case, the firm and union simultaneously bargain over employment and the wage in order to maximize the joint returns of the union and firms. They use a two-stage model, Tirole [10] points out that the Kreps and Scheinkman model “reflects the idea that when prices adjust more quickly than capacities” or inventories, the Cournot outcome is reached This would apply to heavy manufacturing industries where planning and production times are lengthy. Bertrand-type firms may prefer to deal with a monopoly union or within a right-to-manage framework This may explain why the empirical evidence does not provide unanimous support for any one model of union bargaining. As a referee points out, in practice it can be difficult to determine if a firm is setting price or quantity
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