In this memo we need to calculate what the best course of action is based on a threat of workers going on strike. You will calculate the best offer based on the information provided and how to best communicate that offer to achieve a sub-perfect Nash Equilibrium.

Greetings Liz,

We are in a dire situation here. The housekeepers have formed a labor union and are demanding higher wages of $30/hour, better benefits of full health insurance and funded retirement, and more legal protection from guests. They are threatening to go on strike if we do not meet all of their demands.

As you know, we are offering $20/hour, which is $5/hour more than our competitors), partial health insurance, and matching retirement (both of which are not offered by our competitors). We currently can only offer documentation and investigation referrals to law enforcement, but our legal team is working on providing more support.

I have some numbers about our staffing and benefits. We currently employ 50 housekeepers, each working 2000 hours a year. The cost of covering full insurance would be an additional $5,000 per person, and full retirement would be an additional $3,000 per person. If we only offer better legal protection that will cost about $52,000 per year.

If we reject their offer and let them go on strike we can hire temp housekeepers at competitors rate, but we will lose on quality. That effects our bottom line about $16,000 less per week. On the other hand, the housekeepers will lose about $300/week if they go on strike.

What should we do? What offer should we give them? What should I tell them that can help prevent a strike?