Bargaining agenda in a unionised monopoly with network effects

This paper investigates the bargaining agenda selection in a unionised monopoly with network effects. In contrast with the established result that monopolist always prefers Right-To-Manage (RTM), it is shown that monopolist prefers Sequential Efficient Bargaining (SEB), provided that the network effect is sufficiently intense and union’s power not too high. Since the union always prefers SEB, the presence of network effects may solve the traditional conflict of interests between parties and allow the achievement of the highest social welfare. Moreover, if the monopolist can choose the agenda, it may strategically commit either to RTM or SEB or EB to deter market entry, depending on the network intensity and thus all agendas are an effective device as a barrier to entry. Furthermore, with endogenous agenda’s selection, the parties may agree on SEB, provided that the network effects are intense and the union’s power not excessively low. The social welfare under duopoly with SEB is the Pareto-superior outcome. However, the SEB institution may deter entry in specific cases. Thus, the SEB institution itself may prevent the most desirable welfare outcome but in any case it remains socially preferred to RTM and EB.