DP1912 | Union Power and Product Market Competition: Evidence from the Airline Industry

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In this paper, we specify and estimate a structural model, which links product market competition and union power. The model has a two-stage setting, in which wages are determined through bargaining between management and unions in the first stage, with a price-setting market game to follow in the second stage. Using data for eight European airlines from 1976?94, we provide evidence on price-cost margins and the measurement of market power in a model of rent sharing. In particular, we find that rent sharing reduces firms? profits more than it does consumers? surplus. As a consequence the static impact of unions is more on equity rather than efficiency.