A more thorough explanation:

Definition: Final-offer arbitration is a type of dispute resolution where each party must submit a "final offer" to the arbitrator, who can only choose one. This type of arbitration is used to counteract arbitrators' tendency to make compromise decisions halfway between the two parties' demands.

Examples:

• In a labor dispute, the union and the employer may agree to final-offer arbitration to resolve their differences over a new contract. Each side would submit their final offer to the arbitrator, who would choose one of the offers as the final decision.
• In a legal dispute between two companies, they may agree to final-offer arbitration to avoid a lengthy court battle. Each company would submit their final offer to the arbitrator, who would choose one of the offers as the final decision.

These examples illustrate how final-offer arbitration works. Each party has an incentive to make a reasonable offer because the arbitrator can only choose one. This type of arbitration can be useful in situations where the parties are far apart in their demands and need a neutral third party to make a final decision.