Tuna Dökmeci (European University Institute)
What determines workers bargaining power in frictional labour markets? This paper argues that market tightness is a key determinant by developing non-cooperative framework that provides a microfoundation generalised Nash bargaining weights. I study an alternating-offers wage bargaining game in which agents continue searching while negotiating and endogenously choose whether to abandon ongoing negotiations when new partners arrive. In equilibrium, these choices generate breakdown risk that varies with market tightness, yielding bargaining weights as equilibrium objects rather than exogenous parameters. The main result is that tighter labour markets unambiguously increase workers bargaining power under standard matching technologies. Unlike fixed-weight models, the framework can endogenously generate monopsony outcomes: workers surplus share collapses to zero in slack markets when firms make initial offers.