UNIONS AND WAGES IN PUBLIC AND PRIVATE FIRMS - A GAME-THEORETIC ANALYSIS

The paper studies the effects of product market interaction between private and public (welfare maximising) enterprises on the wage level agreed upon in the bargaining process of the two firms. It is shown that when a public firm interacts with a private competitor, it is more likely to pay higher wages than the private firm than when the two firms are independent monopolists. If the public firm were privatised, there would be a considerable increase in the wage paid by the private firm. The effects on the wage paid by the privatised firm are ambiguous.