Equilibrium Analysis
Strategies are represented in the Nash bargaining game by a pair (x, y). x and y are selected from the interval, where z is the total good. If x + y is equal to or less than z, the first player receives x and the second y. Otherwise both get d. d here represents the disagreement point or the threat of the game; often .
There are many Nash equilibria in the Nash bargaining game. Any x and y such that x + y = z is a Nash equilibrium. If either player increases their demand, both players receive nothing. If either reduces their demand they will receive less than if they had demanded x or y. There is also a Nash equilibrium where both players demand the entire good. Here both players receive nothing, but neither player can increase their return by unilaterally changing their strategy.
Read more about this topic: Bargaining Problem
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