Collective Wage Bargaining And Horizontal Mergers

Jorge Padilla authored an article examining collective wage bargaining and horizontal mergers. In the paper, he argues that labour-market institutions can materially shape the competitive effects of mergers, with changes in bargaining power affecting wages and output, and that merger efficiencies may be partly shared with workers through rent sharing.

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Abstract

Traditional merger analysis treats marginal costs as technological primitives. This paper argues that, in industries with collective wage bargaining, marginal costs are endogenous and depend on market structure and labor-market institutions. The paper derives three new results. First, under decentralized bargaining, horizontal mergers increase consumer harm through a wage-bargaining multiplier: reduced product-market competition strengthens unions' bargaining positions, increasing wages and further reducing output. This amplification mechanism disappears under centralized industry bargaining. Second, the paper shows that technological merger efficiencies are only partially transmitted into lower marginal costs because workers appropriate part of the efficiency through rent sharing. The magnitude of this effect depends on bargaining power and bargaining institutions. Third, when firms and their bargaining counterparts merge simultaneously, the bargaining problem itself changes. Union integration internalizes cross-unit employment externalities, creating a new category of merger efficiencies or, depending on the sign of the spillovers, additional bargaining market power. These results imply that merger control should account explicitly for labor-market institutions when evaluating unilateral effects and efficiency defenses.