On Dominance in Wage Bargaining with Incomplete Information in an Unionized Cournot Oligopoly

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 factors. For solving the wage bargaining game, we use weaker solution concepts like iterative elimination of strictly conditionally dominated strategies ( IECDS) and cautious iterative elimination of strictly conditionally dominated strategies (CIECDS) for games with incomplete information. CIECDS leads to bounds on the playoffs which may arise in the game and to bounds on the agreements that may be reached in the bargaining game. 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.