Unionization Structure, Profit Differential, and Social Welfare in a Differentiated Duopoly with Heterogeneous Firms

In this chapter, we consider unionization structure and show that in quantity competition, the total utilities of the decentralised unions are higher than the utility of the centralised union only if the centralised union charges a uniform wage and the firms’ productivity differences are large irrespective of product differentiation; in price competition, the total utilities of the decentralised unions are higher than the utility of the centralised union only if the centralised union charges a uniform wage with the firms’ productivity differences are large and the degree of product differentiation is small. Total profits in Bertrand competition are less than Cournot competition under differentiated duopoly with firm heterogeneity and hence, the standard result on the ranking of Cournot and Bertrand profits is not reversed with the productivity difference and unionization structures. In addition, the social welfare is always higher under Bertrand competition than under Cournot competition irrespective of unionization structures.

Keywords: Asymmetric firms, centralised union, consumer surplus, Cournot-Bertrand comparisons, decentralised unions, differentiated products, labour productivity, price competition, productivity differences, quantity competition, right-to-manage model, social welfare, union wage, unionization structure, utility.