Chapter summary

In this chapter we present bargaining games, which model situations in which two or more players bargain toward an agreed-upon outcome. The set of all possible outcomes is called the feasible set and each outcome can be attained only by the unanimous agreement of all players. Different players typically prefer different outcomes, which explains the bargaining aspect of the model. A default outcome, called the disagreement point, is realized if the players fail to reach an agreement.

A solution concept for bargaining games is a function that assigns to every bargaining game an outcome that can be looked at as the outcome that would be recommended to the players by an arbitrator or a judge. We list several desirable properties that a solution concept for two-player bargaining games could satisfy and provide the unique solution concept that satisfies all these properties, namely, the Nash solution for bargaining games. Variants of the Nash solution, like the Kalai–Smorodinsky solution, are obtained by imposing a different set of properties that a solution concept should satisfy. Finally, the model and some of the results are extended to bargaining games with more than two players.