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RESEARCH PRODUCT

Commitment and strikes in wage bargaining

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Abstract This paper analyzes the long-run strategic relationship between a firm and a union as a repeated bargaining game, where there is incomplete information on the player's motivation on both sides and each party has a fall-back position. The firm and the union will engage in a reputation-building activity, that will produce a limited number of strikes over time. The bargainer that succeeds in building up a reputation for toughness and obtains a favorable payoff in the long-run is, either the more patient (or alternatively the more centralized), or the party with a higher initial probability of stubbornness, or the party with a smaller fall-back position. Our model also offers predictions on the dependence of strike incidence over time on several parameters.