Cooperative bargaining is a process in which two people decide how to share a surplus that they can jointly generate. In many cases, the surplus created by the two players can be shared in many ways, forcing the players to negotiate which division of payoffs to choose. Such surplus-sharing problems (also called bargaining problem) are faced by management and labor in the division of a firm's profit, by trade partners in the specification of the terms of trade, and more.

The present article focuses on the normative approach to bargaining. It studies how the surplus should be shared, by formulating appealing axioms that the solution to a bargaining problem should satisfy. It is useful when both parties are willing to cooperate in implementing the fair solution. Such solutions, particularly the Nash solution, were used to solve concrete economic problems, such as management–labor conflicts, on numerous occasions.

An alternative approach to bargaining is the positive approach. It studies how the surplus is actually shared. Under the positive approach, the bargaining procedure is modeled as a non-cooperative game. The most common form of such game is called sequential bargaining.

A two-person bargain problem consists of:

The problem is nontrivial if agreements in ${\displaystyle F}$ are better for both parties than the disagreement point. A solution to the bargaining problem selects an agreement ${\displaystyle \phi }$ in ${\displaystyle F}$.

The feasible agreements typically include all possible joint actions, leading to a feasibility set that includes all possible payoffs. Often, the feasible set is restricted to include only payoffs that have a possibility of being better than the disagreement point for both agents.

The disagreement point ${\displaystyle d}$ is the value the players can expect to receive if negotiations break down. This could be some focal equilibrium that both players could expect to play, or zero if no agreement is reached. This point directly affects the bargaining solution, however, so it stands to reason that each player should attempt to choose his disagreement point in order to maximize his bargaining position. Towards this objective, it is often advantageous to increase one's own disagreement payoff while harming the opponent's disagreement payoff (hence the interpretation of the disagreement as a threat). If threats are viewed as actions, then one can construct a separate game wherein each player chooses a threat and receives a payoff according to the outcome of bargaining. It is known as Nash's variable threat game.

John Forbes Nash Jr. came up with the Nash bargaining solution. It is the unique solution to a two-person bargaining problem that satisfies the axioms of scale invariance, symmetry, efficiency, and independence of irrelevant alternatives. According to Paul Walker, Nash's bargaining solution was shown by John Harsanyi to be the same as Zeuthen's solution of the bargaining problem.