Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a Nash equilibrium?
A) Management requests $50 and the labor union accepts $0.
B) Management requests $35 and the labor union accepts $10.
C) Management requests $20 and the labor union accepts $20.
D) Management requests $25 and the labor union accepts $10.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, no player can benefit by changing their strategy while the other players keep theirs unchanged. In option A, if management requests $50, the labor union, knowing that rejecting would give them $0, will accept $0 because accepting any amount greater than $0 is better than getting nothing. The labor union cannot improve its payoff by rejecting the offer, and management maximizes its share by offering $0 to the union, making this a Nash equilibrium.

Management and a Labor Union Are Bargaining Over How Much