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

Author(s): Damien J Neven, Lars-Hendrik Röller, Zhentang Zhang
Publication Date: June 1998
Keyword(s): Airline Industry, Efficiency, market power, rent sharing, union power
JEL(s): L40, L93
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1912

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.