Beyond the Deadline: wage bargaining between war of attrition and preemption game

Beyond the deadline of the wage collective agreement, union members can decide to continue the work under the terms of the old contract while they are bargaining with the employer. This situation which is referred to as the hold out option, seems to be nowadays an important feature in labor negotiations in several countries. Nevertheless, prior wage bargaining models have neglected this behavior, focusing exclusively on strike and lock-out actions. This paper introduces a holdout option in a game of timing between a union and an employer. We derive two situations, namely the S-Game and the L-Game, which are the two sides of a hybrid game of war of attrition and preemption game. The analysis of the class of Nash equilibria and subgame perfect equilibria suggests that the holdout attitude might lead to ambiguous effects. Although it is a very stimulating theoretical concept, the holdout could easily result in bad uses or inefficient behavior. This is explained by the existence of a dynamic inconsistency between the short run and the long run players'rationality.