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Raising Rivals' Fixed (Labor) Costs: The Deutsche Post CaseSven HeitzlerDetecon; German Institute for Economic Research (DIW Berlin) Christian WeyUniversity of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) May 2010 DIW Berlin Discussion Paper No. 1008 Abstract: We analyze the bargaining problem of an incumbent firm and a union when the wage contract becomes generally binding. Our main application relates to competition among operators of mail delivery networks. We describe the Deutsche Post case which highlights the raising rivals' costs incentive and its consequences resulting from labor laws that make collective agreements generally binding. We show that minimum wages implemented by means of extension regulation are an effective deterrence instrument which frustrates both market entry as well as investments into the build-up of a mail delivery network.
Number of Pages in PDF File: 33 Keywords: Minimum wages, postal services, collective bargaining, raising rivals' costs JEL Classification: L12, J52, K31 working papers seriesDate posted: September 23, 2010Suggested CitationContact Information
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