On striking for a bargain between two completely informed agents

This paper provides a thorough equilibrium analysis of a wage contract negotiation model where the union must choose between strike and holdout between offers and counter-offers. When the union and the firm have different discount factors, delay in reaching an agreement may Pareto dominate many immediate agreements. We derive the exact bounds of equilibrium payoffs and characterize the equilibrium strategy profiles that support these extreme equilibrium payoffs for all discount factors. In particular, our analysis clarifies open issues on the maximal wage in this model when the union has a higher discount factor than the firm. We would like to thank Wilko Bolt, Gerard van der Laan, Michiel Keyzer, and an associate editor and the referee for their comments and suggestions. Quan Wen is grateful to the Tinbergen Institute and the Vrije Universiteit for their hospitality and generosity. This project is supported by Netherlands Organization for Scientific Research (NWO), grant B45-271.