Bargaining power

Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other in order to achieve favourable terms in an agreement.^[1] This power is derived from various factors such as each party’s alternatives to the current deal, the value of what is being negotiated, and the urgency of reaching an agreement. A party's bargaining power can significantly shift the outcome of negotiations, leading to more advantageous positions for those who possess greater leverage.

If both parties are on an equal footing in a debate, then they will have equal bargaining power, such as in a perfectly competitive market, or between an evenly matched monopoly and monopsony.^[2] In many cases, bargaining power is not static and can be enhanced through strategic actions such as improving one's alternatives, increasing the perceived value of one's offer, or altering the negotiation timeline.^[3] A party's bargaining power can significantly shift the outcome of negotiations, leading to more advantageous positions for those who possess greater leverage.

The dynamics of bargaining power extend beyond individual negotiations to affect industries, economies, and international relations. In the realm of international trade negotiations, countries with larger economies or unique resources may wield greater bargaining power, affecting the terms of trade agreements and economic policies.^[4] Similarly, in labour economics, for example, the bargaining power of workers versus employers can influence wage levels, working conditions, and job security.^[5] Understanding the factors that influence bargaining power and how it can be balanced or leveraged is crucial for negotiators, policymakers, and analysts striving to achieve favorable outcomes in various contexts.

There are a number of fields where the concept of bargaining power has proven crucial to coherent analysis, including game theory, labour economics, collective bargaining arrangements, diplomatic negotiations, settlement of litigation, the price of insurance, and any negotiation in general.