Discussion Paper

No. 2017-9 | March 07, 2017
When unionisation is profitable for firms in network industries


In 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 risk-averse, it is shown that the presence of strong network effects makes unionisation the Pareto-efficient sub-game perfect Nash equilibrium outcome for firms. The issue of entry is also investigated.

JEL Classification:

J51, L13, L20


  • Downloads: 97


Cite As

Luciano Fanti and Domenico Buccella (2017). When unionisation is profitable for firms in network industries. Economics Discussion Papers, No 2017-9, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-9

Comments and Questions

Anonymous - Point to be added to the introduction
March 08, 2017 - 11:25

Dear authors --

I went through the manuscript with interest. I advise you to link your study (in the introduction and perhaps when discussing your results) to the literature on discrimination against unions and union members. Given your results, this discrimination should not be needed, which is interesting from ...[more]

... a policy perspective.

Some relevant studies:
Baert, S., Omey, E. (2015): Hiring Discrimination against Pro-Union Applicants: The Role of Union Density and Firm Size. Economist, 163, 263—280.
Gall, G. (2009): Closing Down a Means of Collective Voice for Workers - Victimisation of Union Activists in Britain. Journal of Workplace Rights, 14, 75—95.
Heery, E., Simms, M. (2010): Employer responses to union organizing: patterns and effects. Human Resource Management Journal, 20, 3—22.

Luciano Fanti and Domenico Buccella - Thanks
March 16, 2017 - 09:37

We thank the reader for highlighting this point and suggesting its discussion
in the introduction. It can add value to the next verion of our work.

Kind regards

The authors

Anonymous - Referee Report 1
March 09, 2017 - 11:00

see attached file

Luciano Fanti and Domenico Buccella - Reply to Referee comments
March 16, 2017 - 09:39

See attachment.

The authors.

Domenico Buccella - References in the Reply to the Referee
March 17, 2017 - 02:07

In our reply to Referee 1, we have mentioned some articles in newspaper and other contributions in the literature not reported
at the end of the letter. We apologise for this fault.

Here, the full list of references quoted in our reply:

Al Jazeera America, 2015. Unions ...[more]

... make strides among Silicon Valley workforce, May 12, 2015. Available online at http://america.aljazeera.com/articles/2015/5/12/unions-make-strides-among-silicon-valley-workforce.html

BloombergBusinessweek, 2015. Microsoft’s unionized contract workers get aggressive, April 30, 2015. Available online at http://www.bloomberg.com/news/articles/2015-04-30/microsoft-contract-workers-are-organizing

Bughin, J., 1999. The strategic choice of union–oligopoly bargaining agenda. International Journal of Industrial Organization 17(7), 1029–1040.

Fanti, L., and Buccella, D., 2016. Bargaining agenda and entry in a unionised model with network effects. Italian Economic Journal 2(1), 1-31.

Fanti, L. and Buccella, D. (Forthcoming). Bargaining agenda in a unionised monopoly with network effects: when corporate social responsibility may be welfare-reducing. Economia Politica, Journal of Analytical and Institutional Economics.

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