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.