The following represents the potential outcomes of your first salary negotiation

Question

The following represents the potential outcomes of your first salary negotiation after graduation:  

Assuming this is a sequential move game with the employer moving first, indicate most likely outcome.  Does the ability to move first give the employer an advantage?  If so, how?  As the employee, is there anything you could do to realize a higher payoff?

Employer Low Salary Offer High Salary   Offer Employee Walks Employee Accepts Employee Walks Employee Accepts Employer gets 0 Employer gets 100 Employer gets 0 Employer gets 75 Employee gets 0 Employee Gets 75 Employee gets 0 Employee Gets 100

Explanation / Answer

The most likely outcome if the employer moves first is, that employer offers low salary and the employee accepts. This would be the nash equilibrium in case the employer moves first. Since the points that employer and the employee get for both the scenarios when the salary offered is high or low and when the employee accepts, then any of these two situations can be nash equiliriums and both are most likely (equally likely)

The ability to move first would have given the employer the advantage if he would have gotten more than 100 for the scenario where low salary is offered and the employee accepts, but since its the same 100 for both low and high salaries, he is not at much advantage. Qualitatively we can say that yes the employer has an advantage as he can offer a low salary and still get 100.

As an employee the best option in any case is to accept the offer as both high and low salary would give the employee 75. The highest payoff available here is 75 itself.

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