Profit sharing and strike activity in Cournot oligopoly

Abstract

Within an incomplete-information framework. we develop a model of wage determination in a unionized Cournot oligopoly. The assumption of incomplete information allows the possibility of strikes or lockouts, which waste industry potential resources, at equilibrium. Facing such deadweight loss, the government or the social planner may decide to adopt a policy, such as a profit-sharing scheme. Under two different bargaining structures (firm level vs. industry level), we investigate the effects of adopting profit sharing on the wage outcome and the strike activity. If the base-wage bargaining takes place at the industry level, then the introduction of a profit-sharing scheme increases the strike activity. But if the base-wage bargaining takes place at the firm level and the number of firms in the industry is greater than two, then the introduction of a profit-sharing scheme reduces the strike activity.