Wednesday, April 22, 2015

Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework

Minas Vlassis (Department of Economics, University of Crete, Greece) and Maria Varvataki (University of Crete) discuss Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework.

ABSTRACT:  In a union-oligopoly static framework we study the role of unions regarding the possibility and the effects of endogenous cartel formation. Given that firms independently adjust their own quantities, we show that, if union members are not sufficiently risk-averse and firms products are sufficiently close substitutes, then collusion among firms may emerge in equilibrium, and that in contrast to conventional wisdom cartel formation proves to be a welfare improving market arrangement. Quite remarkably, the latter gain in social welfare materializes at the cost of union rents despite it is the union presence which effectively sustains collusion.

https://lawprofessors.typepad.com/antitrustprof_blog/2015/04/welfare-improving-cartel-formation-in-a-union-oligopoly-static-framework.html

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