The labor union and management of a particular company have been negotiating a n
ID: 3173408 • Letter: T
Question
The labor union and management of a particular company have been negotiating a new labor contract. However, negotiations have now come to an impasse, with management making a “final” offer of a wage increase of $1.10 per hour and the union making a “final” demand of a $1.60 per hour increase. Therefore, both sides have agreed to let an impartial arbitrator set the wage increase somewhere between $1.10 and $1.60 (inclusively).
The arbitrator has asked each side to submit to her a confidential proposal for a fair and economically reasonable wage increase (rounded to the nearest dime). From past experience, both sides know that this arbitrator normally accepts the proposal of the side that gives the most (i.e. is willing to change their offer the most from their original starting point) from its final figure. If neither side changes its final figure, or if they both give in the same amount, then the arbitrator normally compromises halfway between ($1.35 in this case). Each side needs to now determine what wage increase to propose for its own maximum advantage.
Formulate this scenario as a two-person, zero-sum game.
Strategy
Player 2
1.1
1.2
1.3
1.4
1.5
1.6
Player 1
1.1
1.2
1.3
1.4
1.5
1.6
Strategy
Player 2
1.1
1.2
1.3
1.4
1.5
1.6
Player 1
1.1
1.2
1.3
1.4
1.5
1.6
Explanation / Answer
Answer) The hints given to formulate a two person, zero sum game are:-
1) The arbitrator normally accepts the proposal of the side that gives the most (i.e. is willing to change their offer the most from their original starting point) from its final figure.
2) If neither side changes its final figure, or if they both give in the same amount, then the arbitrator normally compromises halfway between ($1.35 in this case).
So, the formulation table is given as follows
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