The contract zone

Explicit or implicit in nearly every bargaining the concept is of a contract zone. The contract zone defines the range of wage rates within which a settlement is possible. The upper limit of the contract zone is determined by the maximum wage rate that TWU Local 100 would desire to obtain - the lower limit of the contract zone is determined by the minimum wage rate that the MTA would desire to have. Between the upper limit of TWU Local 100 and the lower limit of the MTA is where the bargaining wages will take place and where a settlement will be reached.

The next task of bargaining models is to predict the actual wage rate in the contract zone to which TWU Local 100 and the MTA agree at the end of the negotiations. Unfortunately the nature of the bargaining process is such that it is not easy to construct an estimate that is realistic. The reason is because of the strategic interaction that takes place between the bargainers. Strategic interaction arises from the dependency between the wage demands of TWU Local 100 and the MTA, the size of the MTA’s wage offer that for example influences TWU Local 100 demand which then causes the MTA to modify its offer which causes a further change in the TWU Local 100 position and so on.