Odd Rune Straume

"Union collusion and intra-industry trade"
JEL codes: F12; F16; J51; L13
Keywords: Collusion; Intra-industry trade; Labor unions

Abstract: This paper analyses the scope for collusive behavior within the context of an international duopoly supergame in which both firms and monopoly labor unions interact strategically. It turns out that the presence of unions, implying an endogenisation of production costs. Instead, the unions have strong incentives to collude, raising the wage above the equilibrium level of the one-shot game. We propose two candidates for a Nash equilibrium of the supergame, both in which the unions collude. The main result of the paper is that the presence of unions could actually promote intra-industry trade as an equilibrium outcome of the infinitely repeated game.