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Bargaining theories

Bargaining Range theory

This theory has its roots with the late Prof. A.C. Pigou. His theory explains the

process by which labour and management establish upper and lower wage limits

within which a final settlement is made. The upper limit presents the union ideal

wage. Management will offer a wage that is well below that acceptable to the

union. From these two extremes, the union and the management team will

normally proceed through a series of proposals and counter proposals. The union

will gradually reduce its wage demands while the employer will raise its wage

offer. Both sides, however, have established limits as to how far they are willing to

conceived, and in the process establish taking point. According to this theory, the

exact settlement point will depend on the Bargaining skills and strength of theunion and management negotiators.

Chamberlain Model

This model focus on upon the determinants of Bargaining power and the ways in

which changes in these determinants lead to settlement in the majority of the

collective Bargaining situations. He defines power as the ability to secure

opponents agreement to your terms. Thus a union Bargaining power can be

defined as management willingness to agree to the union terms or demands. But

what determines the willingness (or unwillingness) of management to agree to the

union terms? The answer, according to him, depends upon how costly disagreeing

will be relative to how costly agreeing will be i.e.:

Managements perceived cost of disagreeing

with the unions terms

(MCD)

Unions Bargaining Power =

------------------------------------------------------------------------------------------ (1)

Management perceived cost of

agreeing with the unions terms

(MCA)

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If management estimates that it is more costly to agree than to disagree (i.e. if the

Unions Bargaining Power is less than one), management will chose to disagree and

there by reject the unions terms. If however, management judges that it is more

costly to disagree than to agree (i.e., if the

Unions Bargaining Power is greater than one) management will choose to agree.

Managements bargaining Power can be similarly define as;

Unions perceived cost of disagreeing

managements with managements

Terms (UCD)

Bargaining power (MBP) =

--------------------------------------------------------------------------------------------- (2)

Unions perceived cost of agreeing withmanagement s terms (UCA)

Once again if the union believes that it is more costly to agree than to disagree the

union will disagree with managements offer whenever the denominator is greater

than the numerator in eq. 2

i.e., whenever the management is bargaining power is less than 1; the union will

choose to reject managements offer. Conversely, if the union judges it to be more

costly to disagree than to agree, the union will choose to agree. In other word,when managements bargaining power in greater than 1, the union will be willing to

accept managements offer. The unions cost of disagree and agreeing can be

defined similarly to those of management.

The chamberlain Bargaining power model has no. of salient feature:-

1) At least one party must perceive disagreement to be more costly than

agreement in order for the agreement to occur.

2) Once bargaining power is relative in that it depends on the size of the wage

increase on is asking for or offering.

3) Misjudgements of the maximum offer the employer will make (or the

minimum offer the union will accept) or the commitment of the parties to

irreconcilable positions may result in strike even though a mutually

acceptable settlement exist.

4) Compromise offers (and demands) and the approach of the bargaining

deadline both tend to remove the parties toward the agreements.

5) The model allows for coercive tactics (which increase opponents cost of

disagreeing) and for persuasive tactics (which reduce your opponents costof agreeing).

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6) The economic environment, including both the state of the macro economy

and industry structure can affect the Bargaining power of both the parties.

Hicks Bargaining model

This model focuses on the length and the cost of work stoppages. Hicks

proposed that union and management negotiators balance the cost and

benefits of a work stoppage when making concessions on the Bargaining table.

Each side make concessions to avoid a work stoppage. The central idea is that

there is a functional relation between the wage that one or the other party will

accept and the length of the strike that would be necessary to establish thatwage. There is a particular wage that the employer would prefer if the union is

not in the picture. He will concede more, however, in order to avoid a strike and

up to a point, his concession will rise with the length of the strike he

anticipates. A primary difference between the hicks model and Bargaining

Range theory is that the hicks model pinpoints precise wage settlements while

the range theory does not.

Negotiating models:-

Walton and Mkersie proposed one of the most influential models in analysing

negotiations. They distinguished the following four systems of activity or sub

processes in labour negotiations, each having its own functions for the interacting

parties.

1) Distributive bargaining: - the function of which is to resolve conflicts

between the parties.

2) Integrative bargaining:- the function of which is to find common or

complementary interest.

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3) Attitudinal structuring: the function of which is to influence the attitudes of

the participants towards each other.

4) Intra organizational bargaining: - the function of which is to achieve

consensus within each of the interacting group.