Do Workers Negotiate Collectively or Separately? An Application of a Coalitional Bargaining Game with Externalities

Abstract

This study proposes a non-cooperative coalitional bargaining game model to analyse wage negotiations between one employer and two workers. Here, randomly selected workers choose whether to negotiate their wage contracts together or separately, considering wage contract externalities. We show that if the two workers are sufficiently complementary or if externalities are more positive, there exists a grand-coalition SSPE of the bargaining game for any discount factor. However, if the two workers are sufficiently substitutable, there is no grand-coalition SSPE for any discount factor. In addition, we provide a sufficient condition for an SSPE to exist, in which each worker selects separate negotiations with the employer.