Welfare-Enhancing Trade Unions in an Oligopoly with Excessive Entry

37 Pages Posted: 25 Jul 2019

See all articles by Marco de Pinto

Marco de Pinto

University of Applied Labour Studies

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: 2019

Abstract

Trade unions are often argued to cause allocative inefficiencies and to lower welfare. We analyze whether this evaluation is also justified in a Cournot-oligopoly with free but costly entry. If input markets are competitive and output per firm declines with the number of firms (business stealing), there is excessive entry into such oligopoly. If trade unions raise wages above the competitive level, output and profits per firm decline, which could deter entry and thus improve welfare. We find that an increase in the union's bargaining power raises welfare if the (inverse) demand curve is (sufficiently) concave. We also show that collective bargaining loosens the linkage between business stealing and excessive entry.

Keywords: endogenous entry, oligopoly, trade union, welfare

JEL Classification: D430, J510, L130

Suggested Citation

de Pinto, Marco and Goerke, Laszlo, Welfare-Enhancing Trade Unions in an Oligopoly with Excessive Entry (2019). CESifo Working Paper No. 7668, Available at SSRN: https://ssrn.com/abstract=3422250

Marco De Pinto (Contact Author)

University of Applied Labour Studies ( email )

Seckenheimer Landstr. 16
Mannheim, 68163
Germany

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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Trier, 54296
Germany

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IZA Institute of Labor Economics

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