Bargaining Agenda and Entry in a Unionised Model with Network Effects

This paper investigates the bargaining agenda selection in a unionised duopoly with network effects. In contrast to the established result, in which under a pure monopoly the firm always prefers right-to-manage (RTM), it is shown that a sequential efficient bargaining (SEB) is preferred, provided that the network effect is sufficiently intense. Moreover, the monopolist may strategically commit either to the simultaneous efficient bargaining (EB), RTM or SEB to deter market entry, depending on the size of the fixed costs and the network intensity. The strengthening of the network effects has the following implications. First, the blocking agenda switches from EB/SEB (for low-/high-fixed costs of entry) to RTM. Second, high network intensity eliminates the possibility of using the negotiation agenda as a tool to create a barrier to entry. The duopoly under SEB always yields the most desirable social welfare level. However, the threatened monopoly may impede the achievement of the social first-best outcome due to the entry deterrence effect of the bargaining agenda’s strategic choice. The role of the network effect on welfare is various: high network intensity makes the desirable social outcome attainable. However, medium intensity of the network effect may lead to the least desirable welfare level.