Strategic Budget Constraints of Public Firm under Bertrand Competition of Unionized Mixed Duopoly

Choi, Kangsik (2010): Strategic Budget Constraints of Public Firm under Bertrand Competition of Unionized Mixed Duopoly.

Abstract

This paper investigates Bertrand competition of unionized mixed duopoly when the public firm is less efficient than the private firm, including endogenous imposition of the budget constraint on the public firm. Thus, we show that if the public firm's inefficiency is sufficiently small, no imposition of budget constraint is more likely to improve welfare and vice versa. Moreover, we suggest that in either budget constraint or non-budget constraint, the wages of the public firm can be smaller or larger than those of private firm depending upon the degree of inefficiency, which draws contrast to the finding of the previous literature. These results means that both the public firm and its union may or may not have different preferences with regard to the imposition of budget constraint depending upon both the degree of inefficiency and imperfect substitutability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Mixed Duopoly, Bertrand, Union, Budget Constraint, Inefficiency, Social Welfare.
• Subjects: J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J51 - Trade Unions: Objectives, Structure, and Effects; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; H - Public Economics > H4 - Publicly Provided Goods > H44 - Publicly Provided Goods: Mixed Markets

References

Barcena-Ruiz, J.C., 2007,``Endogenous Timing in a Mixed Duopoly: Price Competition," Journal of Economics, 91, 263-272.

Barcena-Ruiz, J.C. and M. L. Campo, 2009, ``Relocation and Public Ownership of Firms," Journal of the Japanese and International Economies, 23, 71-85.

Beato, P. and A. Mas-Colell, 1984, ``Marginal Cost Pricing as a Regulation Mechanism in Mixed Markets," in M. Marchand, P. Pestieu and H. Tulkens, (eds.), The Performance of Public Enterprises, pp. 81-101, North-Holland, Amsterdam.

Booth, A., 1995, The Economics of the Trade Union, Cambridge, Cambridge University Press.

Bos, D., 1991, Privatization: A Theoretical Treatment, Oxford University Press.

Capuano, C. and G. De Feo, 2008, ``Mixed Duopoly, Privatization and the Shadow Cost of Public Funds," CORE Discussion Paper 2008-15.

Choi, K., 2009, ``Strategic Budget Constraints in a Unionized Mixed Oligopoly," mimeo, Pusan National University.

De Fraja, G., 1993, ``Union and Wages in Public and Private Firms: A Game Theoretic Analysis," Oxford Economic Papers, 45, 457-469.

De Fraja, G. and F. Delbono, 1989, ``Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, 41, 302-311.

De Fraja, G. and F. Delbono, 1990, ``Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, 4, 1-17.

Gronblom, S. and J. Willner, 2008, ``Privatization and Liberalization: Costs and Benefits in the Presence of Wage-Bargaining," Annals of Public and Cooperative Economics, 79, 133-160.

Haskel, J. and A. Sanchis, 1995, ``Privatisation and X-Inefficiency: A Bargaining Approach," Journal of Industrial Economics, 43, 301-321.

Haskel, J. and S. Szymanski, 1993, ``Privatization, Liberalization, Wages and Employment: Theory and Evidence for the UK," Economica, 60, 161-182.

Haucap, J. and C. Wey, 2004,``Unionisation Structures and Innovation Incentives," Economic Journal, 114, C149-C465.

Ishida, J. and N. Matsushima, 2006, ``Should Civil Servants be Restricted in Wage Bargaining? A Mixed-Duopoly Approach," Kobe University, GSBA Discussion Paper Series 2006-7.

Ishida, J. and N. Matsushima, 2008, ``Outward FDI in Unionized Oligopoly: Welfare and Policy Implications," Osaka University, OSIPP Discussion Paper DP-2008-E-005.

Ishida, J. and N. Matsushima, 2009, ``Should Civil Servants be Restricted in Wage Bargaining? A Mixed-Duopoly Approach," Journal of Public Economics, 93, 634-646.

Laffont, J-J, and J. Tirole, 1993, A Theory of Incentives in Procurement and Regulation, Cambridge, MA: MIT Press.

Leahy, D. and C. Montagna, 2000, ``Unionisation and Foreign Direct Investment: Challenging Conventional Wisdom?" Economic Journal, 110, C80-C92.

Lommerud, K. E., F. Meland, and L. Sorgard, 2003,``Unionised Oligopoly, Trade Liberalisation and Location Choice," Economic Journal, 113, 782-800.

Lu, Y. and S. Poddar, 2006, ``The Choice of Capacity in Mixed Duopoly under Demand Uncertainty," Manchester School, 74, 266-272.

Matsumura. T., 1998, ``Partial Privatization in Mixed Duopoly," Journal of Public Economics, 70, 473-483.

Matsumura, T. and O. Kanda, 2005,``Mixed Oligopoly at Free Entry Markets," Journal of Economics, 84, 27-48.

Matsumura, T. and N. Matsushima, 2004, ``Endogenous Cost Differentials between Public and Private Enterprises: A Mixed Duopoly Approach," Economica, 71, 671-688.

Matshumura. T. and Y. Tomaru, 2009, ``Mixed Duopoly, Privatization and Subsidization with Excess Taxation Burden," G-COE GLOBE 2 Working Paper Series, No. 19, Waseda University.

Mukherjee, A. and K. Suetrong, 2007,``Unionisation Structure and Strategic Foreign Direct Investment," GEP Research Paper Series 2007/22, University of Nottingham.

Naylor, R. A., 1998,``International Trade and Economic Integration when Labour Markets are Generally Unionised," European Economic Review, 42, 1251-1267.

Naylor, R. A., 1999,``Wage Union Strategies and International Trade," Economic Journal, 109, 102-125.

Naylor, R. A., 2002,``Industry Profits and Competition under Bilateral Oligopoly," Economics Letters, 77, 169-175.

Nett, L., 1993, ``Mixed Oligopoly with Homogeneous Goods," Annals of Public and Cooperative Economics, 64, 367-393.

Oswald, A. J. and P. Turnbull, 1985, ``Pay and Employment Determination in Britain: What are Labour Contracts Really Like," Oxford Review of Economic Policy, 1, 80-97.

Schmidt, K. M., 1996, ``The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, 12, 1-24.

Skaksen, M. Y. and J. R. Sorensen, 2001, ``Should Trade Union Appreciate Foreign Direct Investment?," Journal of International Economics, 55, 379-390.

Straume, O. R., 2003, ``International Merger and Trade Liberalization: Implications for Unionized Labour," International Journal of Industrial Organization, 21, 717-735.

Willner, J., 1999, ``Policy Objectives and Performance in a Mixed Market with Bargaining," International Journal of Industrial Organization, 17, 137-145.

Zhao, L., 1995, ``Cross-Hauling Direct Foreign Investment and Unionized Oligopoly," European Economic Review,39, 379-390.