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Forward induction in a wage repeated negotiation

Author

Listed:
  • Gonzalo Olcina Vauteren

    (Universitat de València)

  • Vicente Calabuig Alcantara

    (Universitat de València)

Abstract

We present a finitely repeated bargaining game with complete information. The stage game is asimultaneous demand game with a fall-back position for both parties, in which we allow one party(say, the union) to estabilish a credible commitment to strike if it is not offered a determinedwage. We try to refine the equilibrium set of the repeated game using a formulation of ForwardInduction. In particular, we say that a path of Nash Equilibria in the repeated game is Consistentwith Forward Induction (CFI) if for all period t the cost of deviation (if it is strictly positive) is greateror equal than the maximal net gain in CFI paths with t-1 horizon. We present several cases in which the average payoff for the union in any CFI path, when thehorizon tends to infinity, is his preferred wage. These results are similar to those obtained with thereputation effects approach and reveal some connection between the FI notion and the approachconsisting of perturbing the game with some incomplete information.

Suggested Citation

  • Gonzalo Olcina Vauteren & Vicente Calabuig Alcantara, 1997. "Forward induction in a wage repeated negotiation," Working Papers. Serie AD 1997-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:1997-16
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1997-16.pdf
    File Function: Fisrt version / Primera version, 1997
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    References listed on IDEAS

    as
    1. Gonzalo Olcina, 1997. "Forward Induction In Games With An Outside Option," Theory and Decision, Springer, vol. 42(2), pages 177-192, March.
    2. Drew Fudenberg & David K. Levine, 2008. "Reputation And Equilibrium Selection In Games With A Patient Player," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 7, pages 123-142, World Scientific Publishing Co. Pte. Ltd..
    3. Osborne, Martin J., 1990. "Signaling, forward induction, and stability in finitely repeated games," Journal of Economic Theory, Elsevier, vol. 50(1), pages 22-36, February.
    4. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
    5. Dekel, Eddie, 1990. "Simultaneous offers and the inefficiency of bargaining: A two-period example," Journal of Economic Theory, Elsevier, vol. 50(2), pages 300-308, April.
    6. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
    7. Ponssard, Jean-Pierre, 1991. "Forward induction and sunk costs give average cost pricing," Games and Economic Behavior, Elsevier, vol. 3(2), pages 221-236, May.
    8. Gonzalo Olcina Vauteren & Vicente Calabuig Alcantara, 1997. "Bargainning, reputation and strikes," Working Papers. Serie AD 1997-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Vicente Calabuig Alcantara, 1997. "Ineficiencias en las negociaciones entre dos agentes completamente informados," Working Papers. Serie EC 1997-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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