Strategic investment and international outsourcing in unionised oligopoly

Dermot Leahy, Catia Montagna

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a non-unionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to 'escape' the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource. © 2011 Elsevier B.V.
Original languageEnglish
Pages (from-to)260-269
Number of pages10
JournalLabour Economics
Issue number2
Early online date4 Dec 2011
Publication statusPublished - Apr 2012


  • outsourcing
  • unionisation
  • wage dispersion
  • strategic investment
  • oligopoly


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