This chapter introduces cooperative game theory by examining the axiomatic theory of two-person bargaining problems. The link between cooperative and noncooperative game theory is first explained in terms of the Nash program. The idea of a cooperative payoff region is then developed for use in applied contexts. The Coase theorem is explained for the case of a Nash bargaining problem. A variant of the Nash bargaining solution with both a breakdown point and a deadlock point is described. A proof of Nash's axiomatic bargaining theorem is offered. The Kalai-Smorodinsky bargaining solution and the Walrasian bargaining solution are offered as alternatives to Nash's solution.
Keywords: cooperative game theory, noncooperative game theory, John Nash, Nash program, Nash bargaining problem, Coase theorem, Pareto efficiency, Nash bargaining solution, Kalai-Smorodinsky bargaining solution, Walrasian bargaining solution
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