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A Simple Bargaining Mechanism That Elicits Truthful Reservation Prices

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We describe a simple 2-stage mechanism that induces two bargainers to be truthful in reporting their reservation prices in a 1st stage. If these prices criss-cross, the referee reports that they overlap, and the bargainers proceed to make offers in a 2nd stage. The average of the 2nd-stage offers becomes the settlement if both offers fall into the overlap interval; if only one offer falls into this interval, it is the settlement, but is implemented with probability 1/2; if neither offer falls into the interval, there is no settlement. Thus, if the bargainers reach the 2nd stage, they know their reservation prices overlap even if they fail to reach a settlement, possibly motivating them to try again.

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Paper provided by University of Haifa, Department of Economics in its series Working Papers with number WP2011/2.

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Length: 16
Date of creation:
Date of revision: 22 Feb 2011
Handle: RePEc:haf:huedwp:wp201102

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Keywords: Bargaining; truth-telling mechanisms; probabilistic implementation;

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  1. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Steven J. Brams & D. Marc Kilgour, 2001. "Competitive Fair Division," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 418-443, April.
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