(Local) Wage Settings and (International) Entry Deterrence Cover Image

(Local) Wage Settings and (International) Entry Deterrence
(Local) Wage Settings and (International) Entry Deterrence

Author(s): Domenico Buccella
Subject(s): Economy
Published by: Vysoká škola ekonomická v Praze
Keywords: labour unions; oligopoly; market entry

Summary/Abstract: The present paper investigates the use of national wage settings as a mechanism to deter entry via foreign direct investment (FDI) in a unionized monopoly industry. A union which sets centralized wages in a multi-unit firm can both decentralize and change the agenda to prevent the market entry of a non-unionized firm. The adoption of the efficient bargaining agenda is especially effective to deter entry because it lowers the fixed-cost threshold the entrant can bear. Moreover, through side-payments, the incumbent and the union can have common interests in modifying the wage setting to reach outcomes that is Pareto-superior to duopoly. However, if the union cedes “too much power” and becomes “too weak”, internal conflicts with the incumbent firm may arise.

  • Issue Year: 26/2017
  • Issue No: 2
  • Page Range: 170-187
  • Page Count: 18
  • Language: English