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Chapter 16: Bargaining

The process of bargaining can be approached in two different ways: strategically or non-strategically. The strategic bargaining model can either be viewed as a sequential-move or simultaneous-move game. This means that a player can take advantage of their first-mover opportunity to change their approach to a sequential-move game from a simultaneous-move game, in order to a gain bigger share of what is at stake. They can also decide to commit to a position to win a big share (Froeb, McCann & Ward, 2015). It is difficult to make threats or credible commitments because the players will be required, against their own interest, to commit to a specific course. Therefore, it would be better if the player never has to use the threats.

The result of bargaining games are determined by the player who makes the first move as well as the one that can devote to a specific bargaining position. They also depend on the counteroffers made by the other players (Froeb, McCann & Ward, 2015). These are the factors on which the strategic bargaining focuses.

Chapter 17: Making Decisions with Uncertainty

Most businesses are faced with the challenge of making decisions without full certainty they would bring the desired outcomes. However, there are approaches that these business can adopt cope with uncertainty and reach decisions that can profit them. When a product’s demand is not known, it leads to pricing uncertainty. Uncertainty is inescapable, and therefore, a firm should first collect more information about various market dynamics to deal with it. For example, when Best Buy did not know the rate of demand for its products, it hired experts to predict variables that could help it deal with the pricing uncertainty, such as the rates of holiday sales (Froeb, McCann & Ward, 2015). Also, Google predicts its internal markets to forecast the usage and demand. The US Military also understands that uncertainty cannot be eliminated, and therefore, advises organizations to learn to accept this fact and find ways to cope with it. This can be done by developing simple plans that are flexible and developing arrangements for likely eventualities. Businesses can use the difference-in-difference approach to gather and analyze information about a decision’s benefits and costs.

Chapter 18: Auctions

Auctions refers to a trade where the buyers bid on a product and the one with the highest bid obtains it. Therefore, the value of the second-highest bid will determine the product’s price. However, there is a different type of auction known as a “second-price auction” or Vickrey, which is a sealed-bid auction where the person with the highest bid gets the product but pays value of the second-highest bid (Froeb, McCann & Ward, 2015). There is also the first-price auction where the highest bid wins and pays its value. It is important for bidders to balance the benefits and costs of placing the highest bid because besides increasing the chance of winning, it can reduce the bidder’s margin.

Airline Merger Response

Having different unions representing the American and British pilots would give them a weaker bargaining power. With the merger, the British Airways and American Airlines would not have to compete with employee wages. The merged company would have the ability to hire workers from the union when it comes to bargaining. As a result, the airline costs would decrease due to lower salary expenses.

References

Froeb, L. M., McCann, B. T., & Ward, M. R. (2015). Managerial economics. Cengage learning.