Collective Bargaining by Business: Economic and Legal Implications

It is sometimes mutually beneficial for businesses to join together through a cooperative or other organisational structure in order to pool their ability to buy or sell goods and services. Collective bargaining is a particular form of cooperation between businesses that is limited to either buying or selling particular products. Collective agreements between competitors are often illegal under competition laws. However, in some jurisdictions, such as Australia and the European Union, collective bargaining can be exempt from those laws. The test for exemption in these jurisdictions involves analysing the costs and benefits of exemption. This article analyses both the costs and benefits of collective bargaining by businesses. The aims of this article are threefold: (1) to develop a simple economic framework to analyse the costs and benefits of negotiations between a collective bargaining group on one side of a market and either a supplier or a customer on the other side of the market; (2) to compare the results from this framework with the approach adopted by the Australian Competition and Consumer Commission (ACCC) in recent collective bargaining decisions; and (3) to highlight areas of potential concern where the ACCC could focus its attention.