ABSTRACT
With globalisation comes increasing degree of competition between exporting firms based in different nations. Third country markets (e.g., Asian markets) may be opened up to both domestic (e.g., US) and foreign (e.g., European) firms as a result of trade lliberalisation under the framework of WTO or due to preferential trading agreements that may encompass different exporting nations. To be successful in such international markets, firms need to be cost-efficient. Unionisation raises wage costs and may neutralise the competitiveness of exporting firms. This may adversely affect their market share and the welfare of their country. This chapter looks at these issues in the context of an oligopolistic model where a unionised domestic firm engages in price competition with a non-unionised foreign firm in a third nation’s market. First, we focus on the case where both exporting nations follow free trade. Then we look at the case where each exporting nation employs an optimal trade policy to raise their nation’s welfare. The interplay between unionisation, optimal trade policies and welfare (under price competition) is the subject of our investigation.
