Inequality of bargaining power in law, economics and social sciences refers to a situation where one party to a bargain, contract or agreement, has more and better alternatives than the other party. This results in one party having greater power than the other to choose not to take the deal and makes it more likely that this party will gain more favourable terms and grant them more negotiating power (as they are in a better position to reject the deal). Inequality of bargaining power is generally thought to undermine the freedom of contract, resulting in a disproportionate level of freedom between parties, and it represents a place at which markets fail.

Where bargaining power is persistently unequal, the concept of inequality of bargaining power serves as a justification for the implication of mandatory terms into contracts by law, or the non-enforcement of a contract by the courts.

The concept of inequality of bargaining power was long recognised, particularly with regard to workers. In the Wealth of Nations Adam Smith wrote,

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.

Beatrice Webb and Sidney Webb in their treatise Industrial Democracy significantly expanded on the critique of 19th century labour conditions and advocated a comprehensive system of labour law contained a chapter called, "The Higgling of the Market". They argued that the labour market was dominated by employers, and therefore had the same effect as monopsony. Workers generally are more under pressure to sell their labour than an employer is under to buy it. An employer can hold out longer, because typically he will have greater financial reserves. This means that much labour is supplied merely out of necessity, than free choice (shifting the supply curve to the right) and it is a false kind of competitive environment. The Webbs also pointed out that discrimination can decrease job opportunities for women or minorities, and that the legal institutions underpinning the market were skewed in favour of employers. Most importantly, they believed that a large pool of unemployed people was a constant downward drag on the ability of workers to bargain for better conditions.

When the unemployed are crowding round the factory gates every morning, it is plain to each man that, unless he can induce the foreman to select him rather than another, his chance of subsistence for weeks to come may be irretrievably lost. Under these circumstances bargaining, in the case of the individual isolated workmen, becomes absolutely impossible.

The Webbs felt that these factors all added up to systemic inequality of bargaining power between workers and employers. The first ever use of the phrase "inequality of bargaining power", however, appears to have been by the British philosopher, John Beattie Crozier in The Wheel of Wealth.

There must always be an inequality of bargaining power between masters and men in every contract, until that day shall arrive when the sacrifices of each master in a strike or lock out will affect his present comfort and future destiny as seriously, in its way, as it does that of each of his workmen.