How do technological changes affect the relative bargaining power of the parties? Solution The market expands by integrating new regions.Capitalists can improve their productivity throughinvestment in R&D. Profits are the higher, the smaller is the elasticity of substitution between any pair of the goods. Production and R&D employ workers who are unionized. Both workers and capitalists can in?uence the government which decides on new members for the common market. The main ?ndings are the following. Both relative union bargaining power and producer market power promote R&D and economic growth. With stronger unions, wages increase. With higher producer market power, capitalists can escape from a greater proportion of wage increases through price increases. Hence, it is easier for them to accept unions .