Strategic union delegation and incentives for merger

Abstract

A unionized duopoly model to analyse how unions affect the incentives for merger is considered. It is found that both firms will merge if and only if unions are weak. However, once surplus-maximizing unions have the option to delegate the wage bargaining to wage-maximizing delegates (such as senior union members), both firms may have incentives to merge even if the union bargaining power is strong. Moreover, the option of strategic delegation may harm both the unions and the firms.

Acknowledgements

Financial support from Spanish Ministerio de Ciencia y Tecnología under the project BEC 2003-02084, support from the CNRS under the project GW/SCSHS/SH/2003-41 and support from the Belgian French Community's program Action de Recherches Concertée 03/08-302 (UCL) are gratefully acknowledged.

This paper presents research results of the Belgian Program on Interuniversity Poles of Attraction initiated by the Belgian State, Prime Minister's Office, Science Policy Programming.

Notes

¹ Mauleon and Vannetelbosch (2005) have developed a model of wage determination with private information, in which the union has the option to delegate the wage bargaining. They have found that the maximum delay in reaching an agreement (or maximum strike activity) is greater whenever the union chooses wage-maximizing delegates instead of surplus-maximizing delegates and remains finite even when the length of the bargaining period shrinks to zero.

² To keep the model as simple as possible it is assumed that once both firms merge both unions merge too. This can be derived endogenously by allowing both unions to choose whether or not to merge once both firms have already merged. Another interpretation is that a merger implies the concentration of all activities in a single plant.