Strike Two: Labor-Management Negotiations in Major League Baseball

Abstract

This article considers a simple variable-threat model of bargaining intended to explain the unusual discontinuous strike threatened by the Major League Players Association in labor negotiations in the Spring of 1980. The model shows that, because the difference between owners' income and players' salaries varies over time, a strike of this sort can arise as an optimal threat on the part of the players. We also consider optimal lockout threats on the part of the owners. The model shows that, when no strike insurance is available, the unique Nash equilibrium of the resulting game involves both a threatened strike and a threatened lockout. However, when strike insurance is available, and in situations in which it is profitable for the owners to purchase it, the unique equilibrium involves a (possibly discontinuous) threatened strike but no threatened lockout.