Strategic investment and international outsourcing in unionised oligopoly |
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| Authors: | Dermot Leahy Catia Montagna |
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| Institution: | 1. National University of Ireland, Maynooth, Ireland;2. University of Dundee, UK;3. Scottish Institute for Research in Economics (SIRE), UK;4. GEP, University of Nottingham, UK;1. Department of Economics and Related Studies, University of York, UK;2. School of Economics and Granger Centre for Time Series Econometrics, University of Nottingham, UK;3. Essex Business School, University of Essex, UK;2. School of Economics & Finance, University of St Andrews, Castlecliffe, The Scores, St Andrews, Fife KY169AL, UK;1. University of Warwick and CAGE, UK;2. CEPR, UK;3. Université Libre de Bruxelles (ECARES), Belgium;1. University of East Anglia, Norwich Research Park, Norwich NR4 7TJ, UK;2. School of Economics, Finance and Management, University of Bristol, 8 Woodland Road, Bristol BS8 1TN, UK |
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| Abstract: | We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a non-unionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to ‘escape’ the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource. |
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