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

The paper studies the effects of product market interaction between pr ivate and public (welfare maximising) enterprises on the wage level ag reed 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 li kely to pay higher wages than the private firm than when the two firms are independent monopolists. If the public firm were privatised, ther e would be a considerable increase in the wage paid by the private fir m. The effects on the wage paid by the privatised firm are ambiguous.