Wage Commitment, Signalling, and Entry Deterrence or Accommodation

26 Pages Posted: 7 Dec 2006

See all articles by Rupayan Pal

Rupayan Pal

Indira Gandhi Institute of Development Research

Bibhas Saha

University of East Anglia (UEA) - School of Economic and Social Studies

Abstract

We analyse the wage choice of a monopoly union against entry threat. The wage carries information about market demand, which is crucial to an uninformed entrant, and in addition affects the entrant's post-entry cost through labour market institutions. The union may wish to deter or accommodate entry depending on whether the entrant will hire from a different source or from the union. Equilibrium wage is distorted downwardly (upwardly) for deterrence (accommodation); but because of wage correlation a low (high) wage can also turn entry profitable (unprofitable). Therefore, separating equilibrium may not always exist, and entry outcomes may be inefficient.

Suggested Citation

Pal, Rupayan and Saha, Bibhas C., Wage Commitment, Signalling, and Entry Deterrence or Accommodation. Labour, Vol. 20, No. 4, pp. 625-650, December 2006, Available at SSRN: https://ssrn.com/abstract=950083 or http://dx.doi.org/10.1111/j.1467-9914.2006.00355.x

Rupayan Pal

Indira Gandhi Institute of Development Research ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Mumbai, Maharashtra 400065
India

HOME PAGE: http://ideas.repec.org/f/ppa232.html

Bibhas C. Saha (Contact Author)

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+44 0 1603 593404 (Phone)
+44 0 1603 456259 (Fax)

HOME PAGE: http://www.uea.ac.uk/eco/people/saha_b.htm

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