April 2008

IZA DP No. 3434: Minimum Wages and Welfare in a Hotelling Duopsony

published in: Economic Theory, 2010, 43 (2), 167 - 188

Two firms choose locations (non-wage job characteristics) on the interval [0,1] prior to announcing wages at which they employ workers who are uniformly distributed; the (constant) marginal revenue products of workers may differ. Subgame perfect equilibria of the two-stage location-wage game are studied under laissez-faire and under a minimum wage regime. Up to a restriction for the existence of pure strategy equilibria, the imposition of a minimum wage is always welfare-improving because of its effect on non-wage job characteristics.