Raising Rivals' Fixed (Labor) Costs: The Deutsche Post Case
33 Pages Posted: 23 Sep 2010
Date Written: May 2010
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.
Keywords: Minimum wages, postal services, collective bargaining, raising rivals' costs
JEL Classification: L12, J52, K31
Suggested Citation: Suggested Citation