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This paper compares Cournot and Bertrand equilibria in a downstream differentiated duopoly in which the input price (wage) paid by each downstream firm is the outcome of a strategic bargain with its upstream supplier (labor union). We show that the standard result that Cournot equilibrium profits exceed those under Bertrand competition--when the differentiated duopoly game is played in imperfect substitutes--is reversible. Whether equilibrium profits are higher under Cournot or Bertrand competition is shown to depend upon the nature of the upstream agents' preferences and on the distribution of bargaining power over the input price. We find that the standard result holds unless unions are both powerful and place considerable weight on the wage argument in their utility function. JEL classification: D43; J50; L13 Keywords: Differentiated duopoly; Wage bargaining; Cournot; Bertrand

The paper develops a theoretical framework in which international trade occurs between economies with imperfectly competitive product markets and unionised labour markets. We are able to investigate the impact on both product and labour market outcomes of increased product market integration across the trading economies. Our strongest result is the finding that increased integration leads monopoly unions to set higher Nash equilibrium wages. In other words, a more competitive product market does not necessarily generate a more competitive labour market. All rights reserved. Keywords: International trade; Reciprocal dumping; Tariffs; Economic integration; Wage determination; Union bargaining

There has been significant interest recently both in the empirical investigation of the determinants of trade union membership, in the U.K. and elsewhere, and in the theoretical analysis of the economic effects of the closed shop trade union. However, there is little rigorous microeconomic explanation of union membership which is relevant for much of the U.K. and similar labour markets where the 'open shop' union is prevalent. This paper attempts to overcome the free-rider problem of explaining union membership in the open shop. We argue that both private pecuniary gains and social influences affect the individuals' union membership decisions, citing evidence in support of these basic assumptions. We show that stable intermediate union density is a possible equilibrium outcome in a generalised social custom model. We also analyse the simultaneous determination of wages and union membership, deriving a number of comparative static results. In particular, we find that both wages and union density depend upon, inter alia, the level of strike pay, the net cost of union membership and the individual's sensitivity to social custom and associated solidarity effects. We argue that the approach is consistent with various stylised facts concerning both wage bargaining and union membership and is able to explain a number of otherwise puzzling features of union membership.