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Bargaining agenda in a unionised monopoly with network effects

Author

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  • Fanti, Luciano
  • Buccella, Domenico

Abstract

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.

Suggested Citation

  • Fanti, Luciano & Buccella, Domenico, 2015. "Bargaining agenda in a unionised monopoly with network effects," MPRA Paper 64090, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:64090
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    File URL: https://mpra.ub.uni-muenchen.de/64090/1/MPRA_paper_64090.pdf
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    References listed on IDEAS

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    1. Luciano Fanti, 2014. "When do firms and unions agree on a monopoly union or an efficient bargaining arrangement?," Discussion Papers 2014/181, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Chirco, Alessandra & Scrimitore, Marcella, 2013. "Choosing price or quantity? The role of delegation and network externalities," Economics Letters, Elsevier, vol. 121(3), pages 482-486.
    3. Pencavel, John, 1985. " Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 197-225.
    4. Bhattacharjee Trishita & Pal Rupayan, 2014. "Network Externalities and Strategic Managerial Delegation in Cournot Duopoly: Is There a Prisoners’ Dilemma?," Review of Network Economics, De Gruyter, vol. 12(4), pages 343-353, January.
    5. Fanti, Luciano & Buccella, Domenico, 2015. "Bargaining agenda, timing, and entry," MPRA Paper 64089, University Library of Munich, Germany.
    6. Cellini, Roberto & Lambertini, Luca & Ottaviano, Gianmarco I. P., 2004. "Welfare in a differentiated oligopoly with free entry: a cautionary note," Research in Economics, Elsevier, vol. 58(2), pages 125-133, June.
    7. Vannini, Stefano & Bughin, Jacques, 2000. "To be (unionized) or not to be? A case for cost-raising strategies under Cournot oligopoly," European Economic Review, Elsevier, vol. 44(9), pages 1763-1781, October.
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    9. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    10. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
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    12. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
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    Cited by:

    1. Fanti, Luciano & Buccella, Domenico, 2015. "Bargaining agenda in public and private monopoly," MPRA Paper 64184, University Library of Munich, Germany.

    More about this item

    Keywords

    Efficient bargaining; Right-to-manage; Firm-union bargaining agenda; Network effects;

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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