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
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

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

  1. Areeda F., Turner D.F. 1980. Antitrust Law. Little Brown and company: Boston.
  2. Barcena-Ruiz J.C., Olaizola N. 2007. Cost-saving production technologies and partial ownership. Economics Bulletin, 15 (6): 1-8.
  3. Barcena-Ruiz J.C., Campo M.L. 2012. Partial cross-ownership and strategic environmental policy. Resource and Energy Economics, 34 (2): 198-210, DOI: 10.1016/j.reseneeco.2011.12.003
  4. Booth A.L. 1995. The Economics of the Trade Union. Cambridge University Press: Cambridge (Mass.).
  5. Brander J.A., Spencer B.J. 1988. Unionized oligopoly and international trade policy. Journal of International Economics, 24 (3): 217-234, DOI: 10.1016/0022-1996(88)90035-9
  6. Bresnahan T.F., Salop S.C. 1986. Quantifying the competitive effects of production joint ventures. International Journal of Industrial Organization, 4 (2): 155-175, DOI: 10.1016/0167-7187(86)90028-7
  7. Correa-Lopez M., Naylor R.A. 2004. The Cournot-Bertrand profit differential: a reversal result in a differentiated duopoly with wage bargaining. European Economic Review, 48 (3): 681-696, DOI: 10.1016/s0014-2921(02)00326-4
  8. Dickescheid T. 2000. Capital income taxation, cross-ownership, and the structure of public spending. FinanzArchiv: Public Finance Analysis, 57 (4): 435-458.
  9. Dietzenbacher E., Temurshoev U. 2008. Ownership relations in the presence of cross-shareholding. Journal of Economics, 95 (3): 189-212, DOI: 10.1007/s00712-008-0018-y
  10. Dixit A.K. 1979. A model of duopoly suggesting a theory of entry barriers. Bell Journal of Economics, 10 (1): 20-32, DOI: 10.2307/3003317
  11. Dowrick S. 1989. Union-oligopoly bargaining. Economic Journal, 99: 1123-1142.
  12. Dowrick S., Spencer B.J. 1994. Union attitudes to labor-saving innovation: when are unions luddites?. Journal of Labor Economics, 12 (2): 316-344.
  13. Fanti L. 2013. Cross-ownership and unions in a cournot duopoly: when profits reduce with horizontal product differentiation. Japan and the World Economy, 27 (c): 34-40, DOI: 10.1016/j.japwor.2013.03.005
  14. Fanti L., Gori L. 2011. A note on trade unions, unemployment insurance, and endogenous growth. Eastern Economic Journal, 37: 270-280, DOI: 10.1057/eej.2010.46
  15. Fanti L., Meccheri N. 2011. The cournot-Bertrand profit differential in a differentiated duopoly with unions and labour decreasing returns. Economics Bulletin, 31 (1): 233-244.
  16. Gilo D. 2000. The anticompetitive effect of passive investment. Michigan Law Review, 99 (1): 1-47.
  17. Gilo D., Spiegel Y. 2003. Partial cross ownership and tacit collusion. The Center for the Study of Industrial Organization at Northwestern University Working Paper #0038.
  18. Gilo D., Moshe Y., Spiegel Y. 2006. Partial cross ownership and tacit collusion. The RAND Journal of Economics, 37 (1): 81-99, DOI: 10.1111/j.1756-2171.2006.tb00005.x
  19. Gilo D., Spiegel Y., Temurshoev U. 2008. Partial cross ownership and tacit collusion under cost asymmetries, mimeo.
  20. Horn H., Wolinsky A. 1988. Bilateral monopolies and incentives for mergers. RAND Journal of Economics, 19 (3): 408-419.
  21. Lommerud K.E., Straume O.R., Sørgard L. 2005. Downstream merger with upstream market power. European Economic Review, 49: 717-743. DOI: 10.1016/s0014-2921(03)00068-0
  22. Macho-Stadler I., Verdier T. 1991. Strategic managerial incentives and cross ownership structure: a note. Journal of Economics, 53 (3): 285-297, DOI: 10.1007/Bf01227626
  23. Mezzetti C., Dinopoulos E. 1991. Domestic unionization and import competition. Journal of International Economics, 31 (1-2): 79-100, DOI: 10.1016/0022-1996(91)90057-D
  24. Naylor R.A. 1999. Union wage strategies and international trade. Economic Journal, 109 (452): 102-125.
  25. Nye W. 1992. Can a joint venture lessen competition more than a merger?. Economics Letters, 40 (4): 487-489.
  26. O’Brian D.P., Salop S.C. 2000. Competitive effects of partial ownership: financial interest and corporate control. Antitrust Law Journal, 67: 559-614.
  27. Pal R. 2010. How Much Should You Own? Cross-Ownership and Privatization. Indira Gandhi institute of Development research: Mumbai.
  28. Pencavel J.H. 1984. The tradeoff between wages and employment in trade union objectives. Quarterly Journal of Economics, 99 (2): 215-231.
  29. Pencavel J.H. 1985. Wages and employment under trade unionism: microeconomic models and macroeconomic applications. Scandinavian Journal of Economics, 87 (2): 197-225.
  30. Petrakis E., Vlassis M. 2000. Endogenous scope of bargaining in a union-oligopoly model: when will firms and unions bargain over employment?. Labour Economics, 7 (3): 261-281, DOI: 10.1016/s0927-5371(99)00043-3
  31. Reitman D. 1994. Partial ownership arrangements and the potential for collusion. Journal of Industrial Economics, 42 (3): 313-322.
  32. Reynolds R.J., Snapp B.R. 1986. The competitive effects of partial equity interests and joint venture. International Journal of Industrial Organization, 4 (2): 141-153.
  33. Singh N., Vives X. 1984. Price and quantity competition in a differentiated duopoly. RAND Journal of Economics, 15 (4): 546-554.
  34. Zhao L. 2001. Unionization, vertical markets, and the outsourcing of multinationals. Journal of International Economics, 55 (1): 187-202, DOI: 10.1016/s0022-1996(01)00090-3

  • Passive Unilateral Cross-ownership and Strategic Trade Policy Luciano Fanti, Domenico Buccella, in Economics 20160010/2016
    DOI: 10.5018/economics-ejournal.ja.2016-10
  • Social welfare and cross-ownership in a vertical industry: When the mode of competition matters for antitrust policy Luciano Fanti, in Japan and the World Economy /2016 pp.8
    DOI: 10.1016/j.japwor.2016.02.004
  • A Simple Model for the Integration of Goods and the Capital Market with Unionized Labor Markets Domenico Buccella, in Ekonomika /2019 pp.19
    DOI: 10.15388/Ekon.2019.1.2
  • Unionized duopoly, market competition with differentiated products, and welfare Domenico Buccella, in Economia e Politica Industriale /2015 pp.455
    DOI: 10.1007/s40812-015-0018-1
  • Partial Cross-Ownership, Cost Asymmetries, and Welfare Luciano Fanti, in Economics Research International /2015 pp.1
    DOI: 10.1155/2015/324507
  • Duopoly, Optimal Proportion of State-Owned Shares and International Cross-Ownership Junlong CHEN, Hao TANG, Jiali LIU, in Revista de Cercetare si Interventie Sociala /2019 pp.352
    DOI: 10.33788/rcis.64.26
  • Strategic trade policy with interlocking cross-ownership Luciano Fanti, Domenico Buccella, in Journal of Economics /2021 pp.147
    DOI: 10.1007/s00712-021-00745-9
  • Cross-ownership in network industries: when less competition implies less profits or more social welfare Domenico Buccella, Luciano Fanti, Luca Gori, in Journal of Economics /2024
    DOI: 10.1007/s00712-024-00888-5
  • Union negotiations, product market cooperation, and profits Domenico Buccella, Leonard F. S. Wang, in Metroeconomica /2021 pp.82
    DOI: 10.1111/meca.12311

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