Manager-Union Bargaining Agenda Under Monopoly and with Network Effects

Abstract

The present paper investigates the determination of the bargaining agenda in a unionised monopoly with managerial delegation, without and with network effects in consumption. First, we show that, in contrast with the received literature, monopolist hires a manager even in the absence of risk-sharing and asymmetric information considerations. Without network effects, in contrast to standard oligopoly results, managerial delegation benefits the monopolist, while harms consumers, workers and society. Moreover, in contrast to the conventional wisdom, monopoly profits with managerial delegation are higher with sequential Efficient Bargaining (EB) than Right-to-Manage (RTM), while union’s welfare can be higher with RTM than EB: then a conflict of interests between the parties may exist but, paradoxically, for reverted choices of the bargaining agenda. Consumption externalities change the picture: managerial delegation benefits consumers, workers and society, provided that the network effect is sufficiently strong and union’s power relatively low. The monopolist still prefers sequential EB; however, the union’s welfare becomes larger under EB even for relatively low value of their power, provided that the network effect is sufficiently strong. Thus, the monopolist and the union endogenously choose the EB agenda which is also Pareto-superior.