There are two distinct reasons why the study of bargaining is of fundamental importance to economics. The first is that many aspects of economic activity are influenced directly by bargaining between and among individuals, firms, and nations. The second is that bargaining occupies an important place in economic theory, since the “pure bargaining problem” is at the opposite pole of economic phenomena from “perfect competition.”

It is not surprising that economic theory has had less apparent success in studying bargaining than in studying perfect competition, since perfect competition represents the idealized case in which the strategic aspect of economic interaction is reduced to negligible proportions by the discipline of a market that allows each agent to behave as a solitary decision maker, whereas pure bargaining is the case of economic interaction in which the market plays no role other than to set the bounds of discussion, within which the final outcome is determined entirely by the strategic interaction of the bargainers. The fact that the outcome of bargaining depends on this strategic interaction has led many economists, at least since the time of Edgeworth (1881), to conclude that bargaining is characterized by the indeterminacy of its outcome. In this view, theories of bargaining cannot, even in principle, do more than specify a range in which an agreement may be found; to attempt to accomplish more would be to introduce arbitrary specificity.