Axiomatic and Strategic Approaches to Bargaining Problems

In this paper, a survey of bargaining theory is presented. First, an axiomatic approach to bargaining problems is considered. I describe the Nash solution to bargaining problems, and present an example of an application of this solution. Some other solutions to bargaining problems, such as the egalitarian solution, the utilitarian solution, and the solution proposed by Kalai and Smorodinsky, are also mentioned. Next, I describe the strategic approach to the bargaining problem. Rubinstein’s bargaining game of alternating offers, the form of Nash equilibria, and the subgame perfect equilibrium of this game are presented. I also describe two special bargaining models with stationary preferences of the players. Moreover, several generalizations of Rubinstein’s model, including models with non-stationary preferences of the players, are presented. Finally, I mention some applications of dynamic bargaining models.