Wage bargaining with incomplete information in an unionized Cournot oligopoly

Abstract

We develop a model of wage determination with private information in an unionized oligopolistic industry and we use it to compare the outcome of collective bargaining under two different bargaining structures - one in which a single wage is bargained at the industry-level and one in which the wages are bargained at the firm-level. The bargaining process is described by Rubinstein's alternating-offer bargaining model with two-sided incomplete information about the bargainers' discount rates. Iterative elimination of strictly conditionally dominated strategies for games with incomplete information leads to bounds on the payoffs which may arise in the game and to bounds on the wage agreements that may be made. Moreover, the perfect Bayesian equilibria payoffs and wages conform to these bounds. The main results are: firm-level wage outcome is not necessarily lower than industry-level wage outcome; potential inefficiency (hence, possible strike activity) is larger when bargaining takes place at the industry-level.