Wage Bargaining And Quality Competition
In a standard model of vertical differentiation, wage is assumed to determine the quality. Wage is also subject to bargaining. Increased bargaining power of the worker in the low quality firm reduces quality differential, and increases price competitiveness. The Opposite happens from a similar change in the high quality firm. Most wage bargaining models of oligopoly assume quantity competition and homogenous product (Dowrick, 1989, Bughin, 1995, Kraft 1998). This paper introduces wage bargaining in a model of vertical differentiation where firms compete in both quality and prices (Gabszewicz and Thisse, 1979; Shaked and Sutton, 1982).