Union Wage Strategies and International Trade

We characterise a full set of possible international trade regimes for different combinations of wages in a two-country model of oligopoly with a homogeneous product. We show that the nature of any equilibrium trade will be either inter-industry (one-way) or intra-industry (two-way) depending on (endogenous) union choices between high and low-wage strategies. We show that intra-industry trade is the more likely the lower are trade costs, and that under intra-industry trade, falling trade costs lead monopoly unions to set higher wages, but the opposite obtains under inter-industry trade.