Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing |
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Authors: | Rupayan Pal Bibhas Saha |
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Institution: | (1) Indira Gandhi Institute of Development Research, Film City Road, Gen A. K. Vaidya Marg, Goregaon (East), Mumbai, 400065, India;(2) Gokhale Institute of Politics and Economics, Pune, India;(3) School of Economics, University of East Anglia, Norwich, UK |
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Abstract: | This paper introduces wage bargaining in the framework of Milgrom and Roberts (Econometrica 50(2):443–459, 1982) where the
workers’ reservation wage is the private information parameter critical for entry. We show that entry threat significantly
distorts the wage, which in some cases adversely affects the firm’s ability to signal through price. Consequently, the separating
equilibrium (in price) does not always exist. If, however, wage agreements are made public, signalling occurs with or without
distortions in wage depending on whether the union’s bargaining power is high or low. Pooling equilibrium also exists and
it features similar distortions. We also examine which signal, wage or price, generates greater social welfare.
We would like to thank two referees for their helpful comments and suggestions. This paper is partially based on a chapter
of Pal’s PhD thesis done at Indira Gandhi Institute of Development Research (IGIDR), India. For remaining errors we are solely
responsible. |
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Keywords: | Entry Bargaining Signalling Wage Union-oligopoly |
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