The Airline Union Game
By Arnold Kling
‘Jane Galt’ gives an explanation for airline bankruptcies .
In single-union negotiations, money left on the table now can be partially reclaimed by demanding higher wages in the next round of negotiations. Not so with multi-lateral arrangements. Any money left on the table by one union will be picked up by another one, since negotiations with different unions are staggered rather than simultaneous.
The idea is that if there are multiple unions, each union has an incentive to try to extort rather than concede, even though the combined extortions bankrupt the company. This can be illustrated using game theory. Consider the following payoff matrix, where there are two unions, A and B, and the payoffs are for union A.
|Union A’s Strategy||Union B Concedes||Union B Extorts|
Regardless of which strategy the other union chooses, our union should choose to extort. Assuming that the other union faces the same payoff matrix, that union also should choose to extort, leading to a payoff of -5 for each, as the airline goes bankrupt.
For Discussion. Do you think that this is a good explanation for airline bankruptcies, or do you think that there are other reasons that the airline industry is unstable?