WAGE BARGAINING AND MERGER INCENTIVES WITH ASYMMETRIC COSTS

Authors


Yasuhiko Nakamura, Faculty of Social and Information Studies, Gunma University, 4-2 Aramaki-machi, Maebashi 371-8510, Japan. Tel: +81 (0)27 220 7403; Fax: +81 (0)27 220 7405; Email: yasuhiko.r.nakamura@gmail.com. We are deeply grateful to the anonymous referee for the helpful comments and suggestions. All the remaining errors are our own. We also thank the financial support by KAKENHI (23730226).

ABSTRACT

This paper examines how wage bargaining within each firm influences the relationship between an equilibrium ownership structure and the most preferred ownership structure from the viewpoint of social welfare, in a unionized oligopoly of asymmetric firms with respect to productivity of capital. We consider the merger incentive of each firm’s owner when the wage level is determined through bargaining between the firm’s owner and union. We derive a condition for both the degree of cost asymmetry among existing firms and the relative bargaining power of each firm’s owner to her/his union such that each ownership structure can be observed in equilibrium. We also show that although the two types of ownership structures with the merger involving the least efficient firm can be equilibria and socially optimal, these structures are observed only when both the degree of cost asymmetry and the relative bargaining power of each firm’s owner are moderate. Finally, we analyse the relationship among the cooperative game approach employed in this paper and two non-cooperative merger formation approaches, and examine the robustness of the results obtained in this paper against the change in the assumption regarding each firm’s cost function.

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