Welfare effects of cross-ownership in a unionised duopoly
Journal title ECONOMIA E POLITICA INDUSTRIALE
Author/s Luciano Fanti
Publishing Year 2014 Issue 2014/2
Language English Pages 21 P. 21-41 File size 201 KB
DOI 10.3280/POLI2014-002002
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The present study analyses the effects of an increase in the share of one-sided cross-ownership in a Cournot duopoly with firm-specific monopolistic unions. Since the cross-participation at ownership level implies a lower degree of competition, then in a duopoly without unions, as expected, consumer surplus and social welfare, despite the increase in the industry profits, are reduced when cross-participation increases. By contrast, when the labour market is unionised, I show the counterintuitive result that, despite the degree of competition is reduced by cross-ownership, both consumer surplus and social welfare increase with the share of cross-participation. This always occurs provided that unions are sufficiently wage-oriented. Moreover, it is shown that the results are also robust to the Bertrand mode of competition. Therefore, the policy implication is that, when wage-interested unions are in existence in oligopoly industries, a rise in cross-participation - i.e. a lower degree of competition - is socially preferred.
Keywords: Cross-ownership, duopoly, unions, social welfare
Jel codes: D43, L13, L4, J51
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Luciano Fanti, Welfare effects of cross-ownership in a unionised duopoly in "ECONOMIA E POLITICA INDUSTRIALE " 2/2014, pp 21-41, DOI: 10.3280/POLI2014-002002