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A Simple Bargaining Mechanism that Elicits Truthful Reservation Prices

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Listed:
  • Steven J. Brams

    () (New York University)

  • Todd R. Kaplan

    () (University of Haifa
    University of Exeter Business School)

  • D. Marc Kilgour

    () (Wilfrid Laurier University)

Abstract

Abstract We describe a simple 2-stage mechanism whereby for two bargainers, a Buyer and a Seller, it is a weakly dominant strategy to report their true reservation prices in the 1st stage. If the Buyer reports a higher reservation price than the Seller, then the referee announces that there is a possibility for trade, and the bargainers proceed to make offers in a 2nd stage. The average of the 2nd-stage offers becomes the settlement if they both fall into the interval between the reported reservation prices; if only one offer falls into this interval, it is the settlement, but it is implemented with probability $$\frac{1}{2}$$ 1 2 ; if neither offer falls into the interval, there is no settlement. Comparisons are made with other bargaining mechanisms.

Suggested Citation

  • Steven J. Brams & Todd R. Kaplan & D. Marc Kilgour, 2015. "A Simple Bargaining Mechanism that Elicits Truthful Reservation Prices," Group Decision and Negotiation, Springer, vol. 24(3), pages 401-413, May.
  • Handle: RePEc:spr:grdene:v:24:y:2015:i:3:d:10.1007_s10726-014-9395-5
    DOI: 10.1007/s10726-014-9395-5
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bargaining; Truth-telling mechanisms; Probabilistic implementation; Incomplete information;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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