Working Paper: NBER ID: w2038
Authors: James A. Brander; Barbara Spencer
Abstract: Asymmetries in labour relations can have important effects on imperfectively competitive rivalries between firms. Such asymmetries are particularly striking in cross-country comparisons and are therefore of greatest interest in international markets. Using a simple duopoly model, we focus on two asymmetries. First, one firm may face a noncooperative union and second, institutional factors may allow one firm to commit itself to particular labour input before its rival sets output, giving it a natural Stackelberg leadership role. We examine the trade policy incentives resulting from these labour asymmetries, focusing on profit shifting tariffs, quotas and subsidies.
Keywords: international trade; oligopoly; labor market institutions; asymmetric information; strategic trade policy
JEL Codes: F12; F13; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unionization (J51) | Output in the industry (L69) |
| Unionization (J51) | Profits for the unionized firm (J51) |
| Unionization (J51) | Profits for the non-unionized firm (L29) |
| Labor commitment (J89) | Output rivalry advantage (D43) |
| Labor commitment (J89) | Profits for the firm (L21) |
| Unionization alters effectiveness of trade policy measures (J51) | Optimal trade policy requires higher intervention levels (F13) |