Suppose that management and labor are bargaining over how much of a surplus to give to workers. The $100 can be divided into $25 increments. The sides simultaneously write the amount that they want on a piece of paper. If the sum of the amounts does not exceed $100 then the both sides get the amount that they asked for. If the sum of the amounts exceeds $100 then the bargaining ends in a stalemate. Assume that failure to come to an agreement costs both union and management $1. How many Nash equilibria does this game have?
A) 1
B) 2
C) 3
D) 4
E) 5

Question

Quizplus · Accepted Answer

There are 5 Nash equilibria: (0,100), (25,75), (50,50), (75,25), and (100,0). In each case, neither side can unilaterally change their demand without risking a stalemate, which would cost them $1.

Suppose That Management and Labor Are Bargaining Over How Much