Manager-union bargaining agenda under monopoly and with network effects

Fanti, Luciano and Buccella, Domenico (2015): 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Efficient Bargaining; Right-to-manage; Firm-union bargaining agenda; Managerial Delegation; Network effects
• Subjects: J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J51 - Trade Unions: Objectives, Structure, and Effects; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm

References

Ashenfelter, O., and Brown, J.N., 1986. Testing the efficiency of employment contracts. Journal of Political Economy 94, 41–87.

Baumol W. 1958. On the theory of oligopoly. Economica 25: 187–198. Berle A.A., and Means G.C. 1932. The Modern Corporation and Private Property. Harcourt, Brace and World: New York.

Bhattacharjee, T. and Pal, R., 2013. Managerial Delegation in Monopoly under Network Effects, WP-2013-009, Indira Gandhi Institute of Development Research, Mumbai, May 2013. http://www.igidr.ac.in/pdf/publication/WP-2013-009.pdf

Bhattacharjee, T. and Pal, R., 2014. Network externalities and strategic managerial delegation in cournot duopoly: Is there a prisoners dilemma? Review of Network Economics, 12(4):343–353

Bolton, P. and Dewatripont, M., 2004. Contract Theory. MIT Press, Cambridge, MA.

Booth, A.L., 1995. The Economics of the Trade Union. Cambridge Univ. Press.

Buccella D., 2011. Corrigendum to “The strategic choice of union oligopoly bargaining agenda” [Int. J. Ind. Organ. 17 (1999) 1029–1040], International Journal of Industrial Organization 29, 690–693.

Bughin, J., 1999. The strategic choice of union–oligopoly bargaining agenda. International Journal of Industrial Organization 17, 1029–1040.

Cabral, L., Salant, D.J., and Woroch, G.A., 1999. Monopoly pricing with network externalities. International Journal of Industrial Organization 17 (2), 199–214.

Chirco A., and Scrimitore M., 2013. Choosing price or quantity? The role of delegation and network externalities. Economics Letters 121 (2013) 482–486.

Dowrick, S., and Spencer, B.J., 1994. Union attitudes to labor-saving innovation: when are unions luddites? Journal of Labor Economics 12, 316–344.

Fanti, L., 2015. Union-Firm Bargaining Agenda: Right-to-Manage or Efficient Bargaining? Economics Bulletin, 35(2), 936-948.

Fanti, L., and Meccheri, N., 2013. Managerial Delegation under Alternative Unionization Structures, Labour, CEIS, 27 (1), 38-57.

Fershtman, C and Judd, K., 1987. Equilibrium incentives in oligopoly, American Economic Review 77: 927-940.

Jansen, T., van Lier, A. and van Witteloostuijn, A., 2007. A note on strategic delegation: the market share case, International Journal of Industrial Organization 25: 531-539. Jansen, T., van Lier, A. and van Witteloostuijn, A., 2009. On the impact of managerial bonus systems on firm profit and market competition: the cases of pure profit, sales, market share and relative profits compared, Managerial and Decision Economics 30: 141-153.

Hoernig, S., 2012. Strategic delegation under price competition and network effects. Economics Letters, 117(2):487-489.

Katz, M. and Shapiro, C., 1985. Network externalities, competition, and compatibility. American Economic Review, 75(3):424-440.

Manning, A., 1987a. An Integration of Trade Union Models in a Sequential Bargaining Framework. The Economic Journal, 97, 121–139.

Manning, A., 1987b. Collective Bargaining Institutions and Efficiency. European Economic Review, 31, 168–176.

McDonald, I.M., and Solow, R.M., 1981. Wage bargaining and employment. American Economic Review 71 (5), 896–908.

Meccheri N., and Fanti L., 2014. Managerial Delegation Contracts under Centralized Unionization, Managerial and Decision Economics, 35, 51–66.

Nickell, S.J., and Andrews, M., 1983. Unions real wages and employment in Britain 1951–1979. Oxford Economic Papers 35, 183–206, Supplement.

Pencavel, J.H., 1985. Wages and employment under trade unionism: microeconomic models and macroeconomic applications. Scandinavian Journal of Economics 87, 197–225.

Sklivas, S., 1987. The strategic choice of managerial incentives, RAND Journal of Economics 18: 452-458.

van Witteloostuijn, A., Jansen, T. and van Lier, A., 2007. Bargaining over managerial contracts in delegation games: managerial power, contract disclosure and cartel behavior, Managerial and Decision Economics 28: 897-904.

Vickers, J., 1985. Delegation and the theory of the firm, Economic Journal 95: 138-147.