In this case, we expect the outcome to differ radically from 50:50. Because management has the sole power to propose, it is in the much stronger bargaining position. Management should be able to get close to the entire amount and reach agreement on the first day.

To predict the bargaining outcome, we start at the end and work backward.

On the last day there is no value in continuing, so labor should be willing to accept any positive amount, say $1.00. On the penultimate day, labor recognizes that rejecting today’s offer will bring only $1.00 tomorrow; hence, they prefer to accept $2.00 today. The argument continues right up to the first day.

Management proposes to give labor $101, and labor, seeing no better alternative in the future, accepts.

Table 4: Wage Bargaining—Management Makes All Offers Days to Go Offer by Total Profits to Divide Amount Offered to Labor 1 Management $ 1,000 $1 2 Management 2,000 2 3 Management 3,000 3 4 Management 4,000 4 5 Management 5,000 5

…

100 Management 100,000 100 101 Management 101,000 101 This story clearly exaggerates management’s true bargaining power.

Postponing agreement, even by one day, costs management $999 and labor only

$1. To the extent that labor cares not only about its payments but also how these payments compare to management’s, this type of radically unequal division will not be possible. But that does not mean we must return to an even split.

Management still has all the bargaining power. Its goal should be to find the minimally acceptable amount to give to labor so that labor prefers getting that amount over nothing, even though management may get more. For example, in the last period, labor might be willing to accept $334 while management gets

$666 if labor’s alternative is zero. If so, management can perpetuate that 1:2 split throughout each of the 101 days and capture two-thirds of the total profit. The value of this technique for solving bargaining problems is that it suggests some of the different sources of bargaining power. Splitting the difference or even division is a common but not universal solution to a bargaining problem. Look forward and reason backward provides a reason why we might expect to find unequal division. In particular, it suggests that in the case of making offers, “’Tis better to give than to receive.”