The analysis combines models of industrial organization (IO) with micro-economic models of wage bargaining between trade unions and employers. Partial equilibrium models are standard in IO. Typically the labor market is ignored. The advantage of this method is that it is possible to analyze more complex situations, for example strategic behavior. But by including the wage bargaining process new insights into problems of industrial economics can be obtained. In this book for the first time the analysis of trade union wage bargaining is combined with models of vertically connected oligopolies.
The following questions are analyzed:
- How does the institutional setting of the wage bargaining process influence the outcome in the product market? Does the product price depend on the level where the bargaining takes place (at the firm level, at the sector level or at the industry level)?
- Does wage bargaining influence the industrial structure? Does the firms’ incentive for vertical integration change with the institutional setting of the wage bargaining?
- Does the institutional setting of the wage bargaining influence the firms’ incentive to use franchising contracts?
As a result the specification of the institutional setting of the wage bargaining matters. Therefore the bargaining power of the unions should be an additional factor in the field of IO.