Ex-Post Bertrand Competition in Wage Determination
Expert TheoryReview
Standard axiomatic Nash bargaining models assume a fixed bargaining power weight between workers and employers, failing to capture how worker application congestion and multiple job offers endogenously redistribute match surplus during economic interventions.
Picture this
Think of an auction for a house. If a home buyer receives only one seller's offer, the seller demands the highest price possible, leaving the buyer with minimum gain (the worker gets their minimum reservation wage). But if two different sellers compete simultaneously to sell their houses to the exact same buyer, the sellers bid their prices down to cost, allowing the buyer to capture the full economic surplus.
What the evidence says
Endogenizing wage bargaining via Bertrand competition confirms that mandatory job search assistance lowers reservation wages ($w_l$), increases firm vacancy creation, and leads to a monotonic welfare decline as program participation intensity increases across the labor market.
- Who was studied
- Theoretical specification evaluated on N = 40,403 Danish unemployed job seekers across 14 labor market regions.
- How
- Structural directed search model where workers sending multiple applications receive full match productivity surplus ($w = p$) when holding multiple offers, versus reservation wages ($w = w_l$) when holding a single offer.
What to do
Model labor market wage outcomes as a function of multiple simultaneous job offer probabilities to endogenize worker bargaining power under variable search intensity.
From the source
"Bertrand competition implies that if a worker receives offers from multiple firms, wages are driven up to productivity (w=p). But if a worker only receives one offer, the firm receives the full surplus."
816b5187-9076-4043-aba7-184043b2e524-Estimating Equilibrium Effects of Job Search Assistance.pdf