Theories
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Medina Tripoli, Libya
Behavioral theory[edit]
The personality theory in bargaining emphasizes that the type of personalities determine the bargaining process and its outcome. A popular behavioral theory deals with a distinction between hard-liners and soft-liners. Various research papers refer to hard-liners as warriors, while soft-liners are shopkeepers. It varies from region to region. Bargaining may take place more in rural and semi-urban areas than in a metro city.[citation needed]
Game theory[edit]
Bargaining games refer to situations where two or more players must reach an agreement regarding how to distribute an object or monetary amount. Each player prefers to reach an agreement in these games, rather than abstain from doing so. However, each prefers that the agreement favor their interests. Examples of such situations include the bargaining involved in a labor union and the directors of a company negotiating wage increases, the dispute between two communities about the distribution of a common territory, or the conditions under which two countries agree on nuclear disarmament. Analyzing these kinds of problems looks for a solution that specifies which component in dispute corresponds to each party involved.
Players in a bargaining problem can bargain for the objective as a whole at a precise moment in time. The problem can also be divided so that parts of the whole objective become subject to bargaining during different stages.
In a classical bargaining problem, the result is an agreement reached between all interested parties or the status quo of the problem. It is clear that studying how individual parties make their decisions is insufficient for predicting what agreement will be reached. However, classical bargaining theory assumes that each participant in a bargaining process will choose between possible agreements, following the conduct predicted by the rational choice model. It is particularly assumed that each player's preferences regarding the possible agreements can be represented by a von Neumann–Morgenstern utility theorem function.
Nash defines a classical bargaining problem as being a set of joint allocations of utility, some of which correspond to what the players would obtain if they reach an agreement, and another that represents what they would get if they failed to do so.
A bargaining game for two players is defined as a pair (F,d) where F is the set of possible joint utility allocations (possible agreements), and d is the disagreement point.
For the definition of a specific bargaining solution, it is usual to follow Nash's proposal, setting out the axioms this solution should satisfy. Some of the most frequent axioms used in the building of bargaining solutions are efficiency, symmetry, independence of irrelevant alternatives, scalar invariance, monotonicity, etc.
The Nash bargaining solution is the bargaining solution that maximizes the product of an agent's utilities on the bargaining set.
The Nash bargaining solution, however, only deals with the simplest structure of bargaining. It is not dynamic (failing to deal with how Pareto outcomes are achieved). Instead, for situations where the structure of the bargaining game is important, a more mainstream game-theoretic approach is useful. This can allow players' preferences over time and risk to be incorporated into the solution of bargaining games. It can also show how the details can matter. For example, the Nash bargaining solution for the prisoners' dilemma is different from the Nash equilibrium.
Bargaining and posted prices in retail markets[edit]
Retailers can choose to sell at posted prices or allow bargaining: selling at a public posted price commits the retailer not to exploit buyers once they enter the retail store, making the store more attractive to potential customers, while a bargaining strategy has the advantage that it allows the retailer to price discriminate between different types of customer. In some markets, such as those for automobiles and expensive electronic goods, firms post prices but are open to haggling with consumers. When the proportion of haggling consumers goes up, prices tend to rise.
Processual theory[edit]
This theory isolates distinctive elements of the bargaining chronology in order to better understand the complexity of the negotiating process. Several key features of the processual theory include:
Bargaining range
Critical risk
Security point
Integrative theory[edit]
Integrative bargaining (also called "interest-based bargaining," "win-win bargaining") is a negotiation strategy in which parties collaborate to find a "win-win" solution to their dispute. This strategy focuses on developing mutually beneficial agreements based on the interests of the disputants. Interests include the needs, desires, concerns, and fears important to each side. They are the underlying reasons why people become involved in a conflict.
"Integrative refers to the potential for the parties' interests to be [combined] in ways that create joint value or enlarge the pie." Potential for integration only exists when there are multiple issues involved in the negotiation. This is because the parties must be able to make trade-offs across issues in order for both sides to be satisfied with the outcome.
Automated bargaining[edit]
When a bargaining situation is complex, finding Nash equilibrium is difficult using game theory. Evolutionary computation methods have been designed for automated bargaining, and demonstrated efficient and effective for approximating Nash equilibrium.
