Downstream Competition, Bargaining, and Welfare

I analyze the effects of downstream competition when there is bargaining between downstream firms and upstream agents (firms or unions). When bargaining is over a uniform input price, a decrease in the intensity of competition (or a merger) between downstream firms may raise consumer surplus and overall welfare. When bargaining is over a two-part tariff, a decrease in the intensity of competition reduces downstream profits and upstream utility and raises consumer surplus and overall welfare. Standard welfare results of oligopoly theory can be reversed: less competition can be unprofitable for firms and/or beneficial for consumers and society as a whole.     

Endogenous scope of bargaining in a union–oligopoly model: when will firms and unions bargain over employment?

The scope of firm–union bargaining is shown to be endogenously determined in a union–oligopoly model with decentralized negotiations. If the unions' power is sufficiently high, all bargaining units choose to negotiate over wages alone, i.e., universal right-to-manage bargaining emerges in equilibrium. Otherwise, wage/employment bargaining and right-to-manage bargaining coexist in the same industry. In equilibrium, some firm–union pairs will always choose to bargain over employment as well, since the firms become Stackelberg leaders in the market by committing to a particular output during the negotiations. The firms and their unions both benefit from the additional Stackelberg rents, provided that the unions' power is small enough. Our analysis suggests that there is not necessarily a negative relationship between unions' power and sectoral employment rates.     

Customer Privacy and Competition

We analyze how different degrees of privacy protection affect industry profits, consumer welfare, and total welfare in a model with switching costs. Firms earn higher profits under weak privacy protection compared with strong or no privacy protection. The relationship between the degree of privacy protection and equilibrium profits is not monotonic. Consumer surplus and total welfare increase with the degree of privacy protection unless firms recognize consumer‐specific switching costs. In that case, pricing conditional on switching costs has favorable implications for consumer surplus and total welfare.     

The making of the German minimum wage: a case study of institutional change

In the more recent dualistic theories, Germany is cited as an example of a less solidaristic equilibrium, in which ‘producer coalitions’ between core workforces supposedly unaffected by deregulation and their employers prevented the introduction of a minimum wage. The present article shows that such an equilibrium never existed. Core workforces are being threatened by the outsourcing of jobs to the low‐wage sector. This threat created the breeding ground for a joint campaign by manufacturing and service unions for a minimum wage, which made it possible to amalgamate the unions' considerable resources at company level, their strength being derived from the German system of codetermination. Under pressure from the manufacturing unions in particular, the arrangements for the minimum wage follow, as far as possible, the traditions of free collective bargaining. As a result, the social partners in Germany have a considerably stronger influence on the minimum wage than those in the UK.     

Spatial Cournot competition and economic welfare: a note

We investigated welfare implications in location-quantity models in a symmetric linear city. We found that when firms are not agglomerated in equilibrium, increasing the distance between firms raises (reduces) producer surplus and social welfare (consumer surplus). Moreover, central agglomeration is always optimal for consumers among symmetric locations, but not necessarily for producers. Central agglomeration can be inefficient even if it is the unique equilibrium outcome. In short, the firms are more likely to agglomerate or locate closer than what welfare maximizers would dictate, whereas they locate farther apart than what consumer surplus maximizers would recommend.     

The bargaining position of low-skilled and high-skilled workers in a globalising world

This paper extends the assessment of the impact of globalisation and technological change on the bargaining power and preferences of employees, by taking worker heterogeneity into account. In contrast with previous studies, two separate unions – representing low-skilled and high-skilled workers respectively – are considered. Using Belgian firm-level data, labour bargaining power and relative wage preference have been estimated by skill level. When these estimates are subsequently regressed on a set of potential determinants, the bargaining power of low-skilled workers appears to fall with imports and offshoring, whereas the bargaining power of high-skilled workers is only positively affected by R&D activities. In addition, a significant effect of globalisation is found on the relative preference of unions for wages over employment, indicating that the effect of globalisation on the behaviour of labour unions is more encompassing than frequently assumed.     

A non-co-operative bargaining model of membership expansion in a producer co-operative

This paper presents a non-co-operative bargaining model of membership expansion in a producer co-operative. The emphasis is on examining the distribution of the resulting surplus between the existing partners and the new member. In the presence of a number of alternative candidates, the existing partners can use the threat of switching negotiating partners to extract additional surplus from the negotiations. The degree of symmetry between the competing candidates necessary for these threats to be credible is specified, as is the nature of the dependence of the parties' payoffs on the various parameters of the model. Potential sources of misallocation within the model are identified.     

Wage claims in the British private sector: 1979–2003

Wage claims have been an important feature of British industrial relations during the postwar period. They help set the boundaries within which wage negotiations take place and provide an insight into the conduct of negotiations, especially during periods of change in industrial relations. Despite this, claims remain an underinvestigated area. This article provides a unique investigation of the dimensions of wage claims over a period of free collective bargaining. The number of wage claims declined along with unionisation but, over a period of economic turbulence, the conduct of British wage setting began to change. We examine data on claims and investigate the influences on changes in those claims over time. We find that external factors (inflation, unemployment and legislative control of unions) were more prominent in shaping the development of claims than changes in the composition of groups who continued to post claims.     

Bargaining over managerial contracts in delegation games: managerial power,contract disclosure and cartel behavior

Modern corporate governance codes include clauses requiring the disclosure of managerial compensation. Such codes have been installed to protect shareholders' interests. In this paper, we explore the impact of such disclosure on consumer welfare. We consider two‐stage delegation games in which owner‐shareholders negotiate about compensation with their managers in the game's first stage. At the end of the first stage, the managerial compensation contract outcomes of the bargaining process are publicly announced. In the second stage, Cournot competition evolves. We prove that sales delegation generates equilibria radically different from relative performance delegation. Using classical Cournot as the benchmark, contractual bargaining over sales compensation gives tougher product market competition—and hence higher consumer surplus. The opposite holds true for relative performance delegation. Then, cartel behavior is promoted, reducing consumer surplus. Copyright © 2007 John Wiley & Sons, Ltd.     

Welfare impacts of a non-profit firm in mixed commercial markets

Utilizing a model that allows for the welfare of the commercial NPO’s stakeholders directly in terms of their consumer surplus, and indirectly in terms of NPO profits, we explore the impact of changes in the NPO’s “social concern” for consumers on market efficiency. Three separate Cournot mixed market scenarios are analyzed: competition between the NPO and a private for-profit firm, competition between the NPO and a public firm, and a market scenario that includes all three firms. We find that the technical efficiency of the NPO vis-à-vis the profit maximizer is crucial in determining whether social welfare rises or falls as the NPO places more weight on their stakeholders’ surplus. In particular, if the NPO is less technically efficient than the profit maximizer or public firm, somewhat paradoxically social welfare may fall as the NPO shows a greater social concern for consumers. In other words, a movement away from pure profit maximizing behavior by a NPO may well be detrimental in these mixed commercial markets. We also show the additional sources of revenue available to a NPO may decrease the overall welfare in these mixed market situations.     

Imperfect Behavior‐Based Price Discrimination

In this article, we develop a model encompassing behavior‐based discriminatory pricing as a limit case of a more general framework where firms have incomplete information about consumers’ purchase histories. We show that information accuracy has a nonmonotonic impact on profits and the worst situation for firms is when information accuracy is intermediate. We also discuss welfare and consumer surplus implications of information accuracy. Although welfare monotonically decreases with the level of information accuracy, there is an inverse U‐shape relationship between consumers surplus and information accuracy.     

Union wages,hours of work and the effectiveness of partial coordination agreements

Small monopoly trade unions decide upon the wage rate per hour and the hours of work subject to firm's demand for union members. Since the resulting Nash equilibrium is characterized by excess unemployment, we study the employment and welfare effects when trade unions try to coordinate their policies. Firstly, we consider a joint agreement about marginal wage moderation, where trade unions remain free to choose the hours of work non-cooperatively. Secondly, we analyze in which way a joint change in the hours of work affects employment and welfare if trade unions are free to choose the wage rate.     

Vertical Integration and Exclusive Behavior of Insurers and Hospitals

We examine vertical integration and exclusive behavior in health care markets in which insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model of two hospitals and two health insurers competing on premiums. We show that asymmetric equilibria exist in which one insurer contracts one hospital whereas the other insurer contracts both hospitals, even if all players are equally efficient in their production. Asymmetric equilibria arise if hospitals are sufficiently differentiated. In these cases, total industry profits increase and consumer welfare decreases in comparison to the case in which both insurers have contracts with both hospitals. Vertical integration makes these equilibria possible for a wider range of parameters.     

Location Choice and Contract Bargaining

We study how managerial bargaining power affects outcomes and payoffs in a Hotelling‐type duopoly framework with restricted and unrestricted locations. We show that bargaining power only affects the distribution of the surplus between owners and managers but does not affect the locations, prices, managerial incentives, and consumer welfare. This is in stark contrast to van Witteloostuijn et al. (2007) and related contributions where bargaining power has real effects. We argue that the difference between our irrelevance result and their findings originates from the fact that their approach seems to be based on a behavioral assumption and not on microeconomic principles of owner–manager bargaining. Copyright © 2015 John Wiley & Sons, Ltd.     

Union effects on pay levels in Britain

The contraction of union representation in Britain raises the question of whether or not unions still achieve a wage premium. Analysis of matched employer–employee data from the 1998 Workplace Employee Relations Survey shows that there is now no demonstrable premium for private sector workers in general. However, unions do achieve a wage premium of around 9% for about half of employees covered by collective bargaining arrangements. The effect of union bargaining spills over to other employees in the same workplaces. The paper identifies circumstances where union effects are strongest—employer endorsement of union membership, high collective bargaining coverage and multi-unionism.     

Productivity and Welfare

Technical change is generally characterized by a rate and biases, both evaluated for given producer prices. This paper examines the potential discrepancy between this rate and the corresponding rate of consumer welfare change as measured by Allais distributable surplus. We postulate a general equilibrium context with various market failures (taxes, quotas, imperfect competition, and “poorly priced” commodities), and use comparative statics to express the rate of welfare change in terms of the rate and biases of the technical change. An elementary simulation model of a taxed economy suggests that the rate of welfare change may differ from the rate of technical change by as much as 50% under plausible circumstances.     

Reverse Pricing and Revenue Sharing in a Vertical Market

Advancing in information technology has empowered firms with unprecedented flexibility when interacting with each other. We compare welfare results in a vertical market (e.g., manufacturers and retailers) for several types of pricing strategies depending upon the following: (1) which side (retailers or manufacturers) chooses retail prices; and (2) whether there is revenue sharing or linear pricing between the two sides. Our results are as follows. Under revenue sharing, retail prices (and thus industry profits) are higher if and only if they are chosen by the side featuring less competition. Under linear pricing, however, retail prices are higher if they are chosen by the side featuring more competition (for linear demand functions). Relative to linear pricing, revenue sharing always leads to lower retail prices, higher consumer surplus and social surplus. However, the comparison on industry profits depends on the demand elasticity ratios. Revenue sharing raises industry profits when the elasticity ratios are small, but the results are reversed when the elasticity ratios are large. Copyright © 2014 John Wiley & Sons, Ltd.     

How does competition among lodging sharing platforms affect welfare and profits?

We investigate the likely effect on prices, consumer surplus, and profits of intensified competition among peer‐to‐peer lodging platforms. We find that intensified competition in the sharing economy may give rise to some surprising results. For instance, intensified competition may allow platforms to charge higher fees from peer suppliers and lead, therefore, to a decline in consumer surplus. Only if the market of professional hoteliers is highly competitive, intensified competition among platforms leads to the traditional outcome that the entry of more platforms leads to lower fees charged from consumers and to enhanced consumer surplus. We also find that platforms may actually earn higher profits when there is intensified competition among professional hoteliers. In addition, while intensified competition among professional hoteliers leads to a decline in the fees that platforms can charge customers, it may actually result in higher lodging prices. We explain these counterintuitive results by the dual role that the lodging price plays in affecting the welfare of individuals active in the sharing economy. While a higher price has an adverse effect on the welfare of demanders of lodging it benefits peer suppliers of lodging because a higher lodging price raises the compensation they receive when offering lodging capacity to a platform.     

Endogenous mergers under multi-market competition

This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.     

Wage Bargaining Under the National Labor Relations Act

Sections 8(a)(3) and 8(a)(5) of the National Labor Relations Act (NLRA) prohibit the management of a firm from unilaterally increasing the wage during contract negotiations without the union's approval. We show how the management can strategically increase the wage during negotiations without violating the NLRA. Increasing the wage during negotiations will upset the union's incentive to strike and decrease the union's bargaining power, thereby shrinking the set of equilibrium contracts in the firm's favor. Indeed, as the union becomes more patient, the set of equilibrium wages converges to the best equilibrium outcome to the firm.