Q2. Why are unions more effective at raising wages in oligopolistic industries than in competitive industries?

Expert Solution

Oligopoly refers to a market situation or a type of market organisational in which a few firms control the supply of a commodity. The competing firms are few in number but each one is large enough so as to be able to control the total industry output and a moderate. However, increase of its output or sales will reduce the sales of rival firms by a noticeable amount.

If input markets are competitive and output per firm declines with the number of firms (business stealing), there is excessive entry into such oligopoly. If trade unions raise wages above the competitive level, output and profits per firm decline, which could deter entry and thus improve welfare wheras in the perfect competition prices raised are back to same position when more firms are entered and started earning normals profits .So unions are not so much effective there beacuse if profit came back to same place , wages will also not rise in long run .

Rahul Sunny answered 6 months ago

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