Welfare-enhancing collusion: the case of highly qualified labor markets

We analyze collusion sustainability in the output market, when the wage of a highly quali…ed labor is determined by the industry input de- mand, and directly correlated with the industry output supply. In this context, expanding production requires …rms to attract additional em- ployees o¤ering them higher wages. We prove that in the case of price competition, the more the wages are sensitive to the industry demand of labor, the easier it is to sustain collusion; moreover, when the labor sup- ply is very sensitive to the input demand, collusion is welfare enhancing. In the case of quantity competition, collusion is sustainable and welfare enhancing for intermediate levels of the labor sensitivity to the input de- mand. Finally, we show that …ring costs are univocally pro-collusive and welfare enhancing. Our results can be extended to any contest with inputs whose prices are endogenous.