An Instructional Exercise in Cost-Raising Strategies, and Perfect Complements Production

Abstract

The author presents an account of the 1993 contract negotiations between the United Auto Workers (UAW) and Ford Motor Company to assist students in developing facility with perfect complements production and cost functions and cost-raising strategies. The author seeks an answer to why the UAW targeted Ford for contract negotiations to establish a benchmark for subsequent negotiations with Chrysler and General Motors. Contrary to assertions of the popular business press that "Ford drew the short straw" in being the first of the "Big Three" automakers to negotiate with the UAW, the author believes it is not implausible that this arrangement served the economic interests of both Ford and the UAW. The UAW targeted Ford because it was more likely to go along with a liberal wage and benefits package given its investment in robotics. In turn, Ford was able to raise, albeit indirectly, its rivals' costs.

Keywords:

• cost-raising strategies
• perfect complements production JEL codes: A20
• A22