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Garment sector trade unions have proved largely powerless to combat hypermobile transnational capital’s systematic extraction of surplus value from the newly industrialized Global South. Optimized conditions for accumulation coupled with the 2005 phase-out of the Multi-Fibre Agreement (MFA) have meant a radical geographic reconfiguration of the globalised garment industry heavily in favour of capital over labour. The thesis approaches the global garment sector from multiple vantage points across the world with the goal of uncovering the obstacles to workers' organisation, examine workers' strategies of resistance, and analyse the changing composition of labour and capital within the clothing commodity chain. The thesis highlights five distinct but interconnected case studies including a transnational workers campaign from a garment factory in Honduras; a history and present-day feasibility of establishing a transnational collective bargaining from El Salvador to Turkey to Cambodia; the prospects for a countermovement in the organizing strategies at the bottom of the clothing commodity and supply chain in Bangalore; the growth of a 'full package' denim manufacturer in changing the relationship between 'buyers' and 'suppliers' on the outskirts of Bangalore; and finally a continuation of this analysis the case of a strike at a monopoly footwear supplier in China. The central research question is: How do workers build power and establish workers' rights in the globally hypermobile garment sector? Ultimately, what is demonstrated within this thesis is that the actions of garment workers shaped and circumscribed the actions of capital in the sector, and as capital transformed new landscapes for accumulation new vistas for opposition begin to emerge.

In this collection of essays, I explore three topics where space and distance plays a fundamental role in international economics. Not only do spatial considerations affect the pattern of trade, the frictions that arise from distance also determine where and how goods are produced and where people live. In Chapter 1, I show that human made locational characteristics can determine the spatial allocation of economic activity. I take the standard core-periphery model and add endogenous housing to its forward-looking dynamic adjustment process. By introducing a model of adjustment with an extra state variable, which I interpret as housing, I show that the distribution of housing allows the model to converge to a unique spatial equilibrium. This explains the observed persistence and robustness of economic agglomerations in the data. Chapter 2 is a theory of task assignment in the production of final goods and across countries. By allowing for tasks to differ in their suitability of being used in the production of multiple goods, my model endogenizes the allocation of tasks in the production of goods that use them. The resulting equilibrium task allocation defines the pattern of off-shoring. Tasks that are used in only one good concentrate in the country with a specialization in production of that good. Tasks used in many goods are allocated across countries, with the more substitutable tasks located in the country with the larger overall output. Gains from off-shoring are derived from a better mix of allocation of tasks into goods as well as larger scale of production. Finally in Chapter 3, I study how real exchange rate fluctuations determine the size and composition of the export sector. Using the methodology set out in Dixit and Pindyck (1994) in a heterogeneous firms model, I determine the set of trigger real exchange rates for entry and exit into exporting. My primary result of this chapter is that exchange rate uncertainty coupled with sunk cost of entry causes hysteresis in the number and productivity of exporting firms. I then extend the model to allow free entry of firms. This explains the stylized fact of the existence of non-exporting firms with higher productivity than some exporting firms.

This dissertation consists of four related, sole-authored chapters. It considers the microeconomic mechanisms for gains from trade in the presence of quality investments by firms. It shows within the framework of a quality-augmented heterogeneous firms model that the quality dimension matters for welfare gains from trade. It also provides novel empirical evidence on adjustment mechanisms of aggregate quality as a consequence of globalization. To the best of my knowledge, this is the first contribution to provide a comprehensive analysis of the role of endogenous product quality in the determination of gains from trade. I first offer an explanation for observed industry heterogeneity in trade-induced productivity gains and show that results depend on whether or not firms have the option to invest in quality. I then take a broader view of welfare gains from trade, looking beyond productivity improvements. I find that globalization can imply a quality-variety trade-off when consumer quality preference is strong - a finding which holds under firm heterogeneity and symmetry. Nevertheless, overall gains from trade are positive. With quality being itself an important channel for gains from trade, I also investigate the detailed mechanisms by which aggregate quality changes as a consequence of globalization. This is done within the same theoretical heterogeneous firms framework as well as empirically using firm-level export data matched with firm-level quality ratings. I argue that firm heterogeneity matters for gains from trade by giving rise to an additional welfare channel in the presence of variable elasticity of demand preferences: high quality firms expand sales disproportionately in a larger market, thereby raising aggregate quality. This theoretical prediction is confirmed by the data. Furthermore, I study the mechanisms for gains from trade in a symmetric firms version of the baseline model. This allows me to isolate the role of firm heterogeneity in driving earlier results. In addition, I analyse the efficiency properties of the market equilibrium for the symmetric firms case.

This thesis explores the causal relationships between tax incentives, research and development (R&D) and productivity. Using R&D survey data from the United Kingdom (UK) Office for National Statistics and administrative data on corporation tax returns from HM Revenue and Customs, I first conduct empirical analyses of tax incentive policies for R&D, and then estimate the elasticity of output with respect to firms' own R&D efforts as well as external R&D performed by neighboring firms in technology and product space. In the first two chapters which focus on tax incentive policies and their evaluation, I am able to identify the policy effect of interest by exploiting two significant reforms in the UK in 2002 and 2008. I find that tax incentives had a positive and significant stimulating effect on businesses' R&D spending. I argue that the availability of a quasi-experimental set up helps in better identifying the policy impact. The production function estimation exercise in the third chapter shows that double counting of R&D human resources and materials in the production function causes the elasticity of output with respect to the firms' own R&D to be substantially underestimated. I also find that the R&D done in multi-unit enterprise groups is productive for the production facilities which themselves do not perform R&D. The Jaffe (1986) and Bloom et al. (2013) measures of external R&D, which account for closeness of firms in technology and product space can be constructed and included in the production function in the spirit of Griliches (1979). I find that the point estimate for the elasticity of output with respect to firms' own R&D is around 3 percent and statistically significant. Evidence is mixed regarding the productivity effects of R&D carried out by competitors in the product market or neighboring firms in technology space. The detailed data sets used in this study offer valuable resources for empirical work on R&D and productivity.

For several years, the literature has discussed whether a country’s particular economic circumstances should be taken into account in competition law and policy design. This thesis discusses whether economic growth should be considered as the guiding principle for Latin American Emerging Economies’ competition law and policy design. It specifically explains why having economic growth as competition policy’s guiding principle makes a difference in choosing superior rules and standards, among the large range of efficient rules. In order to explain how economic growth as a guiding principle has an impact on competition policy design, this thesis studies whether the analysis and application of the prohibitions and standards of abuse of dominance in emerging Latin American economies are appropriate, and why, having regard to economic growth, a different approach might be justified. To engage in the study of such questions this thesis centres on the regulation of dominance and the law governing abuse of dominance, in particular on predatory pricing and excessive pricing. After a careful analysis of such institutions, an optimal rule for the regulation of pricing abuses in these emerging economies is proposed. Similarly, having regard to economic growth as the policy’s guiding principle, the mainstream standards on excessive pricing and price predation are evaluated and a different approach is found to be justified. It is concluded that economic growth should be the principle guiding Latin American emerging economies’ competition law and policy design and it is demonstrated that this will grant these economies policy soundness and identity.

This thesis consists of three chapters that analyze theoretically the role of income inequality in consumer markets. Each chapter introduces distributional considerations into an economic model where previously inequality did not play a major role. Chapter one uses a consumer search model to show under what conditions the distribution of income within a community is related to the type of firms that exist within that community, impacting the level of prices. We show that if time and money costs of search are high enough, only the middle class have incentive to search and therefore are the most aggressive shoppers. Using a supply side model, we argue that firms located in more informed communities are more likely to enter the market as large low-priced retailers. Connecting these two results, the model shows under what conditions the size of the middle class can have a negative relationship with the level of prices. Chapter two demonstrates how firm pricing strategy and determinants of household location can interact to determine city structure. In this city, consumers and firms live on a continuous line interval. The model consists of two types of firms; many high-cost perfectly competitive firms located in the Central Business District, and one large low-cost "Superstore", choosing its price strategically. We show how the shopping habits of the consumer population, as determined by the relative price of the Superstore and the Corner Stores, can contribute to the various income segregation outcomes described in previous literature. In addition we consider the impact of city population structure on the pricing decision of a monopolist facing a competitive fringe. Chapter three uses a simple model of banking services to consider how deposit-taking banks price for their services and choose the type of deposit customers that they target. This chapter goes beyond previous theoretical work on consumer banking, identifying the role of household income in the access to deposit services. We show that a higher rate of return on investments available to banks lowers financial exclusion, increasing the profitability of low-income consumers for deposit-taking institutions. This suggests that the possibility of financial exclusion increases in periods of recession. The chapter demonstrates how an increase in income dispersion can lead to a greater proportion of consumers excluded from mainstream banking.

This thesis consists of three closely connected pieces of work and an enhanced version of my M.Phil. thesis. The first three substantive chapters analyse vertical contracting in input markets under the exercise of differential buyer power. Chapters 2 and 3 consider the case of a supplier selling its output via a supermarket that offers captive demand (due to customers who anyway make a trip for their weekly shopping), which its rival, a local store is not able to offer. It is shown that the supermarket can negotiate an input price lower than the local store's only if its advantage translates into sufficient bargaining strength in setting contracts. The existence of a waterbed effect, the implications of a partially covered market, a nonlinear pricing structure and welfare implications of a ban in discrimination are also explored. Chapter 4 modifies the standard model where size determines buyer power to show that if quantities need to be decided in advance, an increase in a retailer's size is always welfare improving. For the presence of waterbed effects, we propose a novel insight that runs across different classes of models: following a discount to one retailer, the supplier faces two competing incentives - it wants to extract profits from the rival retailer but it also wants to transfer sales towards it. The waterbed effect is shown to be present only if the discount to the retailer is small, so incentives for profit extraction outweigh those for transferring business. Finally chapter 5 studies a firm's strategic incentive to outsource when its product displays network effects. It shows that a firm would choose to increase its observable marginal cost to make its competitor less aggressive and thereby increase its own probability of winning competition for the market. This is robust to small levels of uncertainty.

This thesis presents three papers within the field of dynamic macroeconomics. The first paper, entitled “Medium-frequency cycles and the remarkable near trend-stationarity of output”, presents a dynamic stochastic general equilibrium model with endogenous growth, capable of reconciling the observed large medium-frequency fluctuations in output, with its long run (near) trend-stationarity. This requires a model in which standard business cycle shocks lead to highly persistent movements around trend, without significantly altering the trend itself. The robustness of the trend also requires that scale effects are eliminated both in the long and short runs. In an estimated version of the model, a financial-type shock to the stock of ideas emerges as the key driver of the medium frequency cycle. The second paper, entitled “Learning from learners”, is an intervention into two long running debates: the first, on whether learnability may be used to rule out explosive paths for inflation in New Keynesian models, and the second, into whether Taylor rule parameters may be identified from observing the data. We find that in an economy populated with traditional macroeconomic learners, Taylor rule parameters can always be identified by sophisticated econometric techniques. Furthermore, when all agents in the economy use such sophisticated techniques, stationary sunspot solutions are readily learnable, and there is no guarantee of convergence to a stationary solution even in the “determinate” case. This implies that learnability cannot be used for equilibrium selection. Finally, in the third paper, “Efficient simulation of DSGE models with inequality constraints” (joint with Michael Paetz), we present a new algorithm for the simulation of models subject to inequality constraints, such as the zero lower bound on nominal interest rates. Our algorithm is shown to deliver higher accuracy than all other non-global algorithms, and leading speed. We go on to provide a number of applications of our algorithm.

The first chapter considers a common agency model where two competition authorities share information about a firm under investigation. It shows that information-sharing can sometimes be welfare detrimental unless the authorities coordinate their enforcement policies as well as share information. The reason behind is that the authorities may have different leniency levels and the firm may decide to provide less precise information to one in an attempt to appeal the other. Furthermore it shows that the authorities may want to distort their policies in order to prevent the firm from obscuring the information it provides. The second chapter studies the seller's incentives to provide misleading advice about complex goods such as consumer electronics, banking or phone services. It shows how the incentives to give biased and imprecise advice are affected by the possibility of ex-post litigation, when a court or consumer protection authority investigates how biased the advice is and penalises accordingly. It finds that a more biased advice will also be less precise, thus, a stricter punishment for deceiving consumers also increases precision. The third chapter analyses the impact of trade credit on a relational contract between two vertically related firms. The firms operate in an environment with unobservable shocks, like a developing country or a black market, which create moral hazard in the repayment decision. It shows that the quantity sold in the market will be distorted downwards in order to curb the constrained firm's incentives to steal the credit and derives the optimal repayment scheme.

The existing literature on information disclosure commonly assumes full commitment to truthful disclosure and therefore revelations are always credible, which can be quite unrealistic in many circumstances. This thesis mainly contributes to the literature by studying information disclosure in the form of cheap-talk in auctions and monopoly pricing, which allows for mis-reporting and false disclosure. The thesis is composed mainly of three research papers. The first paper (Chapter 2), also the major chapter of this thesis, investigates cheap-talk information disclosure in auctions, where bidders' preferences are horizontally differentiated. The seller may reveal information of product attributes before the auction, and the disclosure policy is characterized by a partition of the attribute space. In a symmetric setting, I first show that informative equilibria reveal the feature that more precise information is provided for less popular product attributes. Second, I prove an equilibrium existence theorem that an informative equilibrium can be supported by an information partition of any degree, as long as the number of bidders is sufficiently large. And finally, the optimal disclosure policy reveals a complementarity relationship between the number of bidders and the optimal degree of equilibrium partitions. In this chapter, optimal information structure is endogenously determined. In the second paper (Chapter 3), I turn to study how a monopoly seller should reveal a product's horizontal attributes, when consumer preferences conform to a mixture distribution. I show that the optimal disclosure policy largely depends on the characteristics of the mixture distribution. Specifically, when consumer preferences are highly heterogenous, it is better for the seller to reveal information and serve different groups of consumers separately. And when the preference distribution becomes more asymmetric, cheap-talk disclosure is more likely to be dominated by no disclosure at all. In this chapter, information structure is taken as given. The third paper (Chapter 4) studies optimal regulation of risk-averse producers, in a setting of complementary production with independent cost realization. The production can be organized in the form of either component, or integrated production. I show in this paper that the relative virtues of these two forms of production depend on the degree of risk aversion of the producers.

This thesis presents two chapters on credence goods and one on ongoing partnerships in an infinitely repeated game. The chapters on credence goods focus on the welfare and efficiency of equilibria in overcharging models of credence goods, something which has not been explicitly addressed before. The chapter on partnerships presents a theory explaining ongoing partnerships as solving a commitment problem for clients. There is a small literature on partnerships, and this chapter represents a novel but complimentary approach to that literature. At core, chapters 2, 3 and 4 of this thesis ask the following questions respectively: Do competition and information increase welfare in credence goods markets? How do customers in credence goods markets discipline experts from committing fraud? Can these strategies be welfare ranked? Why do ongoing partnerships exist? What problem do they solve?

The efficient operation and expansion of utilities in developing countries is crucial for growth and poverty reduction. However, recent reforms aimed at improving the performance of these sectors through privatization and the introduction of new regulatory regimes have had limited success. This thesis aims to consider the most pertinent problems for utility regulation in developing countries and how policy may need to be adapted appropriately. The thesis begins by surveying the most recent empirical and theoretical work on the area. I argue that four key institutional limitations commonly found in developing countries must be considered when designing regulatory policy: Limited capacity, limited accountability, limited commitment and limited fiscal efficiency. The remainder of the thesis then focuses on two of these weaknesses – limited commitment and limited accountability – to develop further insights into how regulatory policy may be most suitably adapted. In considering the effect of limited commitment, I pursue a theoretical approach. I first focus on the relationship between the government and the utility operator when the government cannot commit to a time-inconsistent policy of not expropriating investment. After building a model where reputation is used to sustain investment in equilibrium, I consider the model’s implications for policy. The thesis then builds a different model to consider the impact of governments’ inability to commit when trading electricity internationally. I focus on the resulting hold-up problem and the impact this has on investment levels within trading countries. The effect of limited accountability is then investigated empirically through the analysis of data on electricity firms and regulators in Latin America. In particular, I consider how firms’ performance is affected by corruption, ownership and regulatory governance, looking in detail at interactions between these variables and attempting to break down regulatory governance into its various components.

This thesis presents four largely independent essays on industrial organisation. The first three essays examine how search and switching costs distort competitive markets, whilst the fourth essay studies how firms themselves might eliminate competition by agreeing to fix the market price. The key insight from the first two essays is that by choosing to pay a search cost, a consumer reveals to a retailer some private information about their product valuations. In this context the first essay re-examines the well-known theoretical Diamond Paradox in which markets completely break down if firms sell only a single product. I demonstrate that multiproduct retailers offer an elegant and realistic way of overcoming this Paradox, and then apply the model to supermarkets. In particular, this essay provides new insights into why convenience stores charge high prices and why grocery stores use selected loss-leaders. The second essay looks at internet search and therefore focuses on the special case in which search frictions become very small. It seeks to explain why retailers pay so much for online advertising, when consumers can easily click on whichever links they like. I show that if consumers have prior information about products, their search behaviour is limited but very informative about their preferences. This places prominent firms in a privileged position, and makes them substantially more profitable. The third essay provides a simple model in which small switching costs are pro-competitive and beneficial to consumers. This challenges the conventional wisdom, but also argues that switching costs should be less of a policy priority than search costs. The final essay examines a game in which two firms bargain over a collusive price. It is shown that entry into such a market may make collusion easier, and may increase price.

Infrastructure—communications, energy, transport, waste, and water networks—is critical for economic activity and social well-being. Practitioners, politicians, and economists advocate high levels of investment in infrastructure under the rubric of 'planning for growth' (or the 'push' paradigm). This paradigm relies on complex public-private arrangements in the name of public interest. These seemingly reasonable arrangements are, however, not delivering their promise. Evidence shows that the needs of infrastructure users in rich and poor countries are not being met, many private providers of infrastructure earn rich returns, assets are rarely built in time or on budget, and there is tremendous waste in the operation of many infrastructure industries. No other sector could survive the profligacy and slack common in infrastructure. I distil the following primary propositions of the accepted wisdom, which is inspired by mainstream economics: First, infrastructure assets necessarily entail high sunk costs and large economies of scale. Consequently, assets last for very long periods of time, and they cannot be readily moved. Second, infrastructure outputs are homogeneous. Third, one network fits all users (large and small). Fourth, infrastructure users, even large ones, are likely to have weak bargaining power in procurement of infrastructure outputs. I challenge these four propositions of the conventional wisdom by putting forward alternative hypotheses. First, instead of being monolithic and costly, infrastructures can be assembled (and disassembled) as flexible modules for specific users in specific places. Drawing on option pricing theory in quantitative finance, I recast infrastructures as 'portfolios of real options'. Second, infrastructure outputs are, in fact, heterogeneous and differentiated services. Third, one infrastructure network cannot fit all users, either today or in the future. Users are remarkably heterogeneous, not only in terms of unique user preferences but also in terms of spatial location. Infrastructure networks need to evolve in tandem with user needs or risk spatial, temporal, and relational obsolescence. Finally, users, large and small, are adept at exerting strong bargaining power in procuring infrastructure both prior to and after rendering durable and immobile investments. Users also strategically deploy intermediaries, e.g. futures and Over-the-Counter (OTC) exchanges, and real estate developers, to negotiate private contracts for infrastructure services. These findings are supported by two case studies. The first case study details the process by which ThyssenKrupp, a large steel company, bargained for its infrastructure by locating to a manufacturing site in the U.S. The second case study focuses on residents of Lavasa, one of the largest property developments in India. Here, small users of infrastructure exert strong bargaining power with the aid of intermediaries—the real estate developer and the property asset manager. New departures in infrastructure provision are urgently needed at a practical level. Poor investments rendered today—particularly if costly, inflexible, and durable—will suffocate tomorrow’s possibilities. The spatial, temporal, and relational approach proposed in this dissertation begins to offer an alternative account of how tomorrow can be modularly shaped.

Four essays, or chapters, model the capital structure, governance, and investment decisions as part of a sequential game. Each chapter is separate in its context, assumptions, and conclusions. The titles of the chapters are below. Abstracts of each essay or chapter can be found at the beginning of each chapter. The titles of the chapters or essays are as follows: I. Managerial Ownership with Rent-Seeking Employees, II. Financing Professional Partnerships, III. Sunk Cost Efficiency with Identical Competitors, and IV. Business Stealing and Bankruptcy. With the exception of Chapter III, which is meant to complement Chapter IV, these essays argue that the structure of financial contracts can affect the real behavior of firms. The first chapter argues that financial governance policies affect the behavior of rank-and-file employees. In Chapter II, the governance and capital structure of professional service firms affects clients’ expectations of the firm’s quality. In Chapter IV, the enforcement of financial contracts by bankruptcy courts affects the number of firms that enter and exit the industry.

This research examines the role played by Open Access entry as a strategy for promoting competition in UK rail freight markets. The theoretical basis for such an investigation is that associated with contestable markets in Economics and more specifically in the promotion of competition in related markets. The overall aims of the research are to first understand the contestability of the UK rail freight market against the background of its underlying market conditions. Secondly, the research compares the experience of Open Access rail freight operators in an international context in order to confirm or reject the explanatory relevance of key variables, as postulated by economists. The research aims have been satisfied in each case through the attainment of a number of specific objectives. These objectives include gaining a wider understanding of the theory of contestable markets, identifying and evaluating a range of barriers to entry faced by Open Access operators (and the strategies they have employed to overcome them), and an appreciation of the factors and processes that determine Open Access activity. The qualitative line of enquiry adopted by the research has produced a review of relevant literature sources and a series of preliminary interviews with industry experts. The former facilitated an in - depth understanding of the characteristics of UK rail freight markets and of the theory of contestability, with a priori reasoning being employed to highlight key issues and controversies. The interviews with key industry experts formed the basis for a subsequent questionnaire survey of members of the Rail Freight Group and other rail industry members. Although most respondents believed that a significant number of barriers to entry existed (with EW&S' first choice over traction being regarded as the most important both in terms of citations and barrier height), 68% of those surveyed thought that there would be some Open Access entry in the first eighteen months after the privatisation of British Rail's trainload freight 1 operations. Sub - contracting of rail haulage was regarded as the most likely modus operandi for new market entrants. This survey was followed up by case studies of the first two instances of Open Access entry (National Power and BNFL), which had both shown considerable interest in the issues raised by the earlier industry survey. These case studies resulted in the identification of a range of similarities and contrasts in barriers encountered and entry strategies, and provided valuable information about the rail freight operations of the two companies. Further analysis has compared entry in an international context and identified strategies that could complement existing practice in the UK. For this purpose, an analytical framework based on a number of themes of Open Access is adopted. Perceptions of regulatory effectiveness in promoting contestable outcomes are also established through a series of in - depth interviews with key industry players. The research project has generated a number of successful outcomes relating to its aims. Markets are not contestable and contestability should not be regarded as an appropriate framework for analysing industry behaviour. This outcome is the result of an awareness of those factors representing barriers to entry and of those structural complexities accounting for a lack of Open Access entry. An understanding of the relative significance of entry barriers and of strategies adopted by operators has also been achieved, along with awareness of those factors and strategies regarded by them as important. The extent to which certain Open Access variables retain their explanatory power in a global context and the scope for utilising entry strategies used elsewhere (such as short - lines) has also been established, along with an awareness of the opinions of key industry players as to the effectiveness of regulatory intervention in the promotion of greater contestability. 11 Overall, this research project has provided valuable insight into the likelihood of Open Access competition in rail freight markets. In addition, it has led to a recognition of the considerable opportunities that now exist for further work on Open Access entry in rail freight markets, both domestically and internationally.

This thesis analyses the way market-share rivalry in the output market affects and is affected by previous stages of competition. In particular, it links asymmetries in the final-market structure to cost differences in input markets and in R&D through firms' incentives to integrate and to innovate. The first model examines the equilibrium arising in vertical markets where oligopolistic upstream and downstream firms bargain over the gains from trade and suppliers' costs differ. The choice between vertical integration and nonintegration for the more efficient industry depends on the cost advantage and on the degree of competition in the final market. Sufficient condition for vertical foreclosure to occur is that final goods are perfect substitutes. Vertical supply may be stimulated by a tariff on the exports of the final good, but the effects of the tariff depend on whether firms have an incentive to foreclose the intermediate market under free trade. The second model focuses on stochastic technological races, and it analyses the evolution of market structure when asymmetric players race for the introduction of a sequence of nondrastic cost-reducing innovations. When the interest rate is low enough, it is the firm ahead to be the likely winner at each stage, reducing competition as the sequence of races evolves. The same result obtains when innovations are fairly efficient relatively to the technology adopted at the start of the race. The third model analyses the impact of different labour institutions on innovation. Asymmetric firms in terms of productivity are assumed to compete in the same product market, while unions differ in the degree of risk aversion and/or in their bargaining strength. Contracts may be struck in the short or in the long run. The analysis shows how these features of the labour market affect the relationship between the union/firm bargain and the likely outcome of the R&D race.