Bargaining power is a concept related to the relative abilities of parties in a situation to exert influence over each other. 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

Monopoly

A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

 and monopsony

Monopsony

In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers...

.

There are a number of fields where the concept of bargaining power has proven crucial to coherent analysis: game theory

Game theory

Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...

, labour economics

Labour economics

Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...

, collective bargaining

Collective bargaining

Collective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions...

 arrangements, diplomatic negotiations

Deterrence theory

Deterrence theory gained increased prominence as a military strategy during the Cold War with regard to the use of nuclear weapons, and features prominently in current United States foreign policy regarding the development of nuclear technology in North Korea and Iran. Deterrence theory however was...

, settlement of litigation

Settlement conference

A settlement conference is a meeting between opposing sides of a lawsuit at which the parties attempt to reach a mutually agreeable resolution of their dispute without having to proceed to a trial. Such a conference may be initiated through either party, usually by the conveyance of a settlement...

, the price of insurance

Insurance

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

, and any negotiation

Negotiation

Negotiation is a dialogue between two or more people or parties, intended to reach an understanding, resolve point of difference, or gain advantage in outcome of dialogue, to produce an agreement upon courses of action, to bargain for individual or collective advantage, to craft outcomes to satisfy...

 in general.

Bargaining power is often expressed as a ratio of a party's ability to influence the other participant, to the costs of not reaching an agreement to that party.

BP_A(Bargaining Power of A) = (Benefits and Costs that can be inflicted upon B)/(A's cost of not agreeing)

BP_B(Bargaining Power of B) = (Benefits and Costs that can be inflicted upon A)/(B's cost of not agreeing)

If BP_A is greater than BP_B, then A has greater Bargaining Power than B, and the resulting agreement will tend to favor A. The reverse is expected if B has greater bargaining power instead.

Here is a layman's terms example of one party displaying large amounts of bargaining power over the other:

Stephanie is applying for a job at Company, Inc. Only one position is available, and there are 100 different people applying for that same position. Company, Inc. will have a lot of choice, and will be in a position to offer Stephanie a standard form contract

Standard form contract

A standard form contract is a contract between two parties where the terms and conditions of the contract are set by one of the parties, and the other party is placed in a "take it or leave it" position with little or no ability to negotiate terms more favorable to it.Examples of standard form...

 for employment

Employment

Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...

, complete with minimum wage

Minimum wage

A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...

 pay, nothing but workers compensation and unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 as benefits, and the possibility for termination at any time, per the doctrine of at-will employment

At-will employment

At-will employment is a doctrine of American law that defines anemployment relationship in which either party can break the relationship with no liability, provided there was no express contract for a definite term governing the employment relationship and that the employer does not belong to a...

.

This formulation and more complex versions with more precisely defined variables have been utilised to describe the behavior of parties to a negotiation and determine where their behavior will fall within the possible options they might agree to. Even in a situation of seeming equality there may be underlying factors that more complex models of bargaining power attempt to include.