Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing

Rupayan Pal, Bibhas Saha

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)


This paper introduces wage bargaining in the framework of Milgrom and Roberts (Econometrica 50(2):443–459, 1982) where the workers’ reservation wage is the private information parameter critical for entry. We show that entry threat significantly distorts the wage, which in some cases adversely affects the firm’s ability to signal through price. Consequently, the separating equilibrium (in price) does not always exist. If, however, wage agreements are made public, signalling occurs with or without distortions in wage depending on whether the union’s bargaining power is high or low. Pooling equilibrium also exists and it features similar distortions. We also examine which signal, wage or price, generates greater social welfare.
Original languageEnglish
Pages (from-to)121-147
Number of pages27
JournalJournal of Economics
Issue number2
Publication statusPublished - 2008

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