"Sequencing strategically: wage negotiations under oligopoly," International Journal of Industrial Organization Volume 20, Issue 7, September 2002, pages 1037-58.
JEL codes: C7, D4
Keywords: strategic sequencing, right-to-manage, negotiations, oligopoly
Abstract: In a unionized
duopoly, such as the American automobile industry, whould the union (such as the United Auto Workers) negotiate new contracts by
bargaining with the firms simultaneously, or should it "strategically sequence" its bargaining partners? This paper analyzes two
models of noncooperative bargaining and product market oligopoly. In the first, bargaining is over wages and employment; in the
second, it is over wages alone; employment and output are determined by the firms in a post negotiation product market game.
One effect of the sequencing of bargaining partners is present in both scenarios: the initial (preexisting) wage contract in
firms where bargaining is postponed affects the threat point of the union in the fist bargain. The better are these preexisting
contracts, from the union's point of view, the more attractive is the option of sequencing. In the second model, there is another
channel, operating via the post negotiation product market game that tends to make sequencing preferable. By negotiating a
relatively high wage with the first firm, the union can raise the profitability of the second firm in the product market game;
consequently, it can get a higher wage there as well, as its share of the incremental revenue that accrues. Moreover, the first
firm is less reluctant to concede a higher wage (than under simultaneity) since it knows that the negative impact of that on its
profits will be alleviated as the second firm will also make a larger concession.