Profits and competition under alternative technologies in a unionized duopoly with product differentiation |
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| Institution: | 1. Department of Economics and Management, University of Pisa, Via C. Ridolfi, 10, I-56124 Pisa (PI), Italy;2. RCEA, The Rimini Centre for Economic Analysis, Rimini, Italy;1. Department of Economics, University of Messina, Italy;2. School of Economics, Nottingham University, United Kingdom;1. Dipartimento di Economia “Marco Biagi”, Università degli Studi di Modena e Reggio Emilia, Viale Berengario 51, 43 ovest, 41121 Modena, Italy;2. Dipartimento di Economia e Management, Università degli Studi di Pisa, Via Cosimo Ridolfi 10, 56124 Pisa, Italy;1. Kedge Business School, Domaine de Luminy, 13288 Marseille, France;2. School of Economics, The University of Sydney, NSW 2006, Australia |
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| Abstract: | This paper aims at investigating if the conventional wisdom (i.e. an increase of competition linked to a decrease in the degree of product differentiation always reduces firms? profits) can be reversed in a unionized duopoly model. We show that a decrease in the degree of product differentiation may affect wages, hence profits, differently, depending on both the firms? production technology and the mode of competition in the product market. Specifically, under constant returns to labour, the “reversal result” can apply under both Cournot and Bertrand competition, but it is more likely when firms compete in quantities. By contrast, under decreasing returns, profits can increase with competition but only if firms compete in prices. |
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| Keywords: | Unionized duopoly Decreasing returns Product differentiation Profits |
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