After graduation, you enter salary negotiations for your first job. Suppose the potential employer (employer A) has two choices: to offer you a high salary or to offer you a low salary. You may then accept or reject whatever offer is made. The payoffs, as well as the decision tree, are depicted in the following figure.

EmployerHigh OfferLow OfferEmployee AcceptEmployee: 100Employer A: 50Employee RejectEmployee: 0Employer A: 0Employee AcceptEmployee: 50Employer A: 100Employee RejectEmployee: 0Employer A: 0

Assume this is a sequential game.

If employer A offers a low salary, you, as the employee, are best served by the offer. In this case, you would earn a payoff of , and employer A would earn a payoff of . Alternatively, if employer A offers a high salary, you are best served by the offer. In this case, you would earn a payoff of , and employer A would earn a payoff of . With this information, employer A will choose to make a offer, since it will yield a higher payoff for him, based on what you (the employee) will subsequently choose.

Suppose you have a competing job offer from employer B. Accepting this job offer gives a payoff of 75. During your negotiations with employee A, you have the option of taking this offer from employer B, and employer A is aware of this offer (as well as the payoff to you). Given this competing offer, the negotiation with employer A is depicted in the following figure:

EmployerHigh OfferLow OfferEmployee AcceptEmployee: 100Employer A: 50Employee RejectEmployee: 75Employer A: 0Employee AcceptEmployee: 50Employer A: 100Employee RejectEmployee: 75Employer A: 0

True or False: With this competing job offer, your threat to reject employer A's offer, if it is low, is now credible.

True

False