3. Think about a contract negotiation between a player and his current team (team A)....
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3. Think about a contract negotiation between a player and his current team (team A). The player creates $5 million worth of value for his current team. Assume the team can only offer contracts in $1 million increments. a. Assume the player has just been drafted by team A and can negotiate with no other teams. If he rejects the teams offer, he can play overseas for $1.5 million for the season. If the player goes overseas, the team gets no value i. Draw the negotiation based on the ultimatum game where the team first makes a salary offer and the player accepts or rejects. If the player rejects, the offer, he goes to play overseas. ii. What is the outcome of this game (what salary do we expect to be negotiated)? iii. How much consumer surplus does the team enjoy as a result of this contract? b. Now assume that the player is a restricted free agent. Another team (Team B) in the league offers to pay him $3 million (that is the full value of the player's contributions to Team B). i. What salary do we expect the player to earn? ii. What team will he play for? iii. How much consumer surplus will the team he plays for realize
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