Recent advances in thermal management and improvements in fabrication and facet passivation enabled extracting unprecedented optical powers from laser diodes (LDs). However, even in the absence of thermal roll-over or catastrophic optical damage (COD), the maximum achievable power is limited by optical non-linear effects. Due to its non-linear nature, two-photon absorption (TPA) becomes one of the dominant factors that limit efficient extraction of laser power from LDs. In this paper, theoretical and experimental analysis of TPA in high-power broad area laser diodes (BALD) is presented. A phenomenological optical extraction model that incorporates TPA explains the reduction in optical extraction efficiency at high intensities in BALD bars with 100μm-wide emitters. The model includes two contributions associated with TPA: the straightforward absorption of laser photons and the subsequent single photon absorption by the holes and electrons generated by the TPA process. TPA is a fundamental limitation since it is inherent to the LD semiconductor material. Therefore scaling the LDs to high power requires designs that reduce the optical intensity by increasing the mode size.