We investigate the implications of product market imperfections on profit sharing, wage negotiation and equilibrium unemployment. The optimal profit share, which the firms use as a wage-moderating commitment device, is below the bargaining power of the trade union. Intensified product market...

The authors characterize equilibrium and efficient modes of production by comparing nested (vertical) outsourcing with horizontal outsourcing. Nested outsourcing is found to be inefficient unless the cost of monitoring outsourced production lines increases sharply with the number of...