This paper develops a theory of collusion in the presence of labor market power. In an oligopoly-oligopsony setting, a firm needs to increase its wage offers to recruit more workers and expand production, which dampens incentives to deviate from a collusive outcome.

As a result, labor market power increases firms' ability to collude, and collusion harms consumers and workers, underlining the need for antitrust authorities to monitor collusive behavior also in labor markets. However, if only wage collusion is monitored, or is prevented by enforcing a minimum wage, firms fiercely collude on prices, leaving consumers worse off than under unconstrained collusion.

By creating externalities across independent product markets, labor market power also engenders cross-market collusion and implies that conglomerate mergers produce anticompetitive multimarket-contact effects. No-poaching and non-compete agreements, preventing a firm from hiring its rivals' workers, act as facilitating practices; pay-equity regulations similarly discourage deviations and facilitate collusion.

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