Stability in a Cournot duopoly under asymmetric unionism

We analyse the stability issue in a Cournot duopoly with heterogeneous players. We show that labour market institutions matter for the stability of the unique interior Cournot-Nash equilibrium. Interestingly, the role played by the existence of firm-specific unions on stability, when the degree of unionism is asymmetric between the two firms, is at all different depending on whether the unionised firm has bounded rational or naive expectations. Indeed, a shift in the union’s preference from employment towards wages acts as an economic (de)stabiliser when workers are paid with the (competitive) unionised wage by the bounded rational firm and with the (unionised) competitive wage by the naïve firm.