# Splitting the Difference and Final Offer Arbitration by ogx10894

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Problem: Splitting-the-Difference and Final-Offer Arbitration

Suppose that a union and an employer are negotiating for wages. The union prefers a high wage
and the employer prefers a low wage. They are unable to agree and bring in an arbiter to assist.

I. Splitting-the-difference arbitration.

A. Given the offers below, fill in the cells with the splitting-the-difference arbitration wage.

Employer’s Offer
Splitting-the-Difference
Arbitration
7                            13

17
Union’s
Offer
19

B. Suppose that you are the union and you know that the arbiter is going to use splitting-the-
difference arbitration. How would this knowledge affect your offer (raise it, lower it, have no
effect on your offer)? ___________________________________________________________

C. Suppose that you are the employer and you know that the arbiter is going to use splitting-the-
difference arbitration. How would this knowledge affect your offer (raise it, lower it, have no
effect on your offer)? ___________________________________________________________

D. Does knowing that splitting-the-difference arbitration will be used bring the two parties
closer together, further apart or not affect the gap between the union and the employer?
______________________________________________________________________________
II. Final-offer arbitration.

A. Suppose that the arbiter is secretly thinking that the most appropriate wage would be \$14.
Given the offers below, fill in the cells with the wage based on final-offer arbitration.

Employer’s Offer
Final-Offer
Arbitration
7                             13

17
Union’s
Offer
19

B. Suppose that you are the union and you know that the arbiter is going to use final-offer
arbitration (but you don’t know exactly what the arbiter thinks is most reasonable). How would
this knowledge affect your offer (raise it, lower it, have no effect on your offer)?
______________________________________________________________________________

C. Suppose that you are the employer and you know that the arbiter is going to use final-offer
arbitration (but you don’t know exactly what the arbiter thinks is most reasonable). How would
this knowledge affect your offer (raise it, lower it, have no effect on your offer)?
______________________________________________________________________________

D. Does knowing that final-offer arbitration will be used bring the two parties closer together,
further apart or not affect the gap between the union and the employer?
______________________________________________________________________________

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