THE OUTSIDE OPTION, BARGAINING SKILL AND THE NASH BARGAINING SOLUTION

The threat point of the Nash bargaining solution is variously identified with the impasse point or the outside option vector of the two players.It has been argued however, that the outside option either does not affect the outcome at all, or is relegated to the role of a corner solution.We examine a non-cooperative model where bargaining skill is explicitly introduced via a probabilistic move structure.We show that this approach manages to unify the two competing viewpoints about the threat point.Depending on the parameter values either interpretation may be valid.Moreover, an intermediate case exists where both the interpretations hold partially.