Contract and Demand

This is a case of a sales firm which operates for 203 days in a year. Each day the firm operates, it generates revenue (profit) of Rs. 10 Lac. At the beginning of the year, the employees’ union confronts the management of the sales firm over wages and the union presents its demand. The management either accepts this, or rejects it and returns the next day with a counteroffer for wage to be paid to the employees. The firm can open and start functioning only after an agreement on wage is reached between the management and the union. As per the prevailing law in the state and the industry, it is the union’s turn to present its demand on the first day/round of negotiation. At this point the management may either accept or reject the demand made by the union and wait till the next (second day of the year) day to come with its offer. Where again the union has the choice to either accept or reject the offer made by the management and go on to the next (third day of the year) day to make their demand to management. The rounds of negotiation may go on and on till the last day unless an agreement is reached between the parties over wage. 4 x 5 = 20 (Please indicate the demand and offer in Rupee value and indicate the pay off for both union and management as [a, b] where a = union’s pay off and b = management’s pay off)

a. What would be the union’s wage demand on the 1st day/round of wage negotiation between management and union, and in case management accepts it what would be the management’s pay off from such negotiation?

b. Who would make an offer or place a demand on the 4th day/round of wage negotiation? What would be the offer / demand? What would be the pay off of each party (union and management) in case the offer / demand made is accepted by the other party?

c. Who would make an offer or place a demand on the 200th day/round of wage negotiation? What would be the offer / demand? What would be the pay off of each party