European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

No 71: Optimal Contracts for Vertically Connected, Unionized Duopolies

Thomas Grandner ()
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Thomas Grandner: Department of Economics, Vienna University of Economics & B.A.

Abstract: In this paper a vertically structured duopolistic market with unionized price setting firms is analyzed. The form of the contract of the transactions between upstream and downstream firms can be linear pricing, franchising or vertical integration. It is known from literature (Irmen (1997)) that the price elasticity of the industry demand and the degree of product differentiation are the decisive factors in the determination of the profit maximizing form of the contract. In this paper it is shown that the bargaining power of the union is an additional factor. With a higher bargaining power linear pricing becomes less preferable.

Keywords: Vertical Integration; Trade Unions

JEL-codes: L22; J51 July 2000

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