Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/201894 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7668
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Trade unions are often argued to cause allocative inefficiencies and to lower welfare. We analyze whether this evaluation is also justified in a Cournot-oligopoly with free but costly entry. If input markets are competitive and output per firm declines with the number of firms (business stealing), there is excessive entry into such oligopoly. If trade unions raise wages above the competitive level, output and profits per firm decline, which could deter entry and thus improve welfare. We find that an increase in the union's bargaining power raises welfare if the (inverse) demand curve is (sufficiently) concave. We also show that collective bargaining loosens the linkage between business stealing and excessive entry.
Subjects: 
endogenous entry
oligopoly
trade union
welfare
JEL: 
D43
J51
L13
Document Type: 
Working Paper
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