On the mode of Competition as a Collusive Perspective in Unionized Oligopoly

In a union-oligopoly framework with differentiated products, this paper endogenizes the mode of product market competition by exploring its strategic role on firms� incentives for collusion. It is shown that in a one-shot game setup, provided that union members are endowed with risk-neutral and monopoly bargaining power during the negotiations, cartel formation is an unavoidable equilibrium in the product market, hence industry�s outcomes and market participants surpluses/rents equal to that of collusive play. The cartel is proved to be welfare improving, if and only if products� substitutability is sufficiently high under Cournot competition. Moreover and given firms� competition, we conclude that among modes of competition, under Bertrand competition Social Welfare is higher than Cournot, while under a Mix of Strategies it lies in-between. Consequently, it is welfare improving to be a benevolent policy maker that deters cartel formation and gives firms� incentive for Bertrand competition.