Abstract

AbstractIn an industry characterised by the presence of network effects, this paper investigates a duopolistic game in which firms may choose whether to bargain over wages and employment with unions or to face a competitive labour market (i.e., without unions). If unions are sufficiently wage‐sensitive, it is shown that the presence of sufficiently large network effects makes unionisation the Pareto efficient sub‐game perfect Nash equilibrium outcome for firms.

Highlights

  • The existence of unionized workers in oligopolistic industries is a widely observed phenomenon in real world

  • Based on Dunlop’s (1944) contribution, several scholars have further developed the analysis introducing alternative unions’ utility functions (e.g. Oswald 1982, 1985; Booth 1995) and different economic behaviour models such as the monopoly union model (Fellner 1949), where the union is assumed to fix wages unilaterally and the firm freely chooses the employment level according to it labour demand curve, and the bargaining models known as the “right-tomanage” (RTM) and “efficient bargaining” (EB)

  • This paper has studied the issue of the firms’ unionisation in a duopolistic game in which firms may choose whether to negotiate over wages and employment with unions or face a competitive, non-unionised labour market

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Summary

Introduction

The existence of unionized workers in oligopolistic industries is a widely observed phenomenon in real world. The equilibrium structure of the industry depends on the interaction between union bargaining power, its wage sensitivity and the intensity of network externality, and their impact on the threshold level the fixed costs: the industry can be characterised by a unionised/non-unionised monopoly/duopoly. It can be identified the role of the network effects: they tend to reduce the ability of the incumbent to use labour relations to deter market entry.

The model
Result
The entry game
Duopoly given market structure
Threat of entry
Conclusions

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