Unions and Market Integration in Contests

In this paper, we study the effects of introducing endogenous costs in aTullock model of rent-seeking. We show that unions can be efficiencyimproving, and that the firms' levels of effort depend more critically uponthe number of firms participating in the contest when unions are present. Wethen study the effects of market integration in a two-country setup.Integrating two initially separate markets is shown to decrease union setwages, but is nevertheless beneficial to firms of both countries only if thereare sufficiently few contestants. However, unions and firms in one countrymight benefit from integration if their resident country is sufficiently largecompared to the post-integration market.