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Asymmetric Information and the Hockey Lockout

2013 January 13
by Phil Miller

The lament of the hockey fan (and fans of other sports) whose favorite league and its union finally reached an agreement that many thought would have been reached in similar form a long time ago.  What took so long?  What idiots!  Billionaires fighting with millionaires.  The fans get hosed.  Grumble grumble. Dagnabbit dangblabbit!!

In an article about Don and Steve Fehr, Sam Mellinger of the Kansas City Star gives us a general reason that any labor economist will recognize as a key finding in the academic research on why labor disputes occur.

“They’re (the players – Phil) impossible not to like,” he says. “They’re impossible not to respect.”

The feeling is mutual, especially after Fehr called what showed to be a management bluff in December and helped strengthen the union. Players like Bruins defenseman Andrew Ference have called hiring Fehr the smartest thing they’ve ever done. Together, the Fehrs and players navigated a tense negotiation that at times threatened another NHL season — seven years ago, long before the Fehrs were involved, the league canceled an entire season — but ended with a deal that most neutral observers see as a victory for the players.

What Mellinger notes is that the dispute went on so long because of  asymmetric information.  One side (or both sides) has information  that the other side doesn’t have, but that the other side would like to have.   Since a labor dispute, be it a lockout or a strike, imposes costs on both sides, one way to get that private information revealed is by letting negotiations go to dispute.

In any event, the players’ union was weakened considerably in the lockout of 2004-05, and they eventually fired their union head.  They needed to bring in a union head who could bring strengthen the union and try to even things out with the owners.  They got that with the Fehr brothers.

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