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A Simple Bargaining Mechanism That Elicits Truthful Reservation Prices

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Abstract

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.

Suggested Citation

  • Brams, Steven J. & Kaplan, Todd & Kilgour, D. Marc, "undated". "A Simple Bargaining Mechanism That Elicits Truthful Reservation Prices," Working Papers WP2011/2, University of Haifa, Department of Economics.
    • Handle: RePEc:haf:huedwp:wp201102
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    Cited by:

    1. is not listed on IDEAS
    2. Roland Kirstein, 2024. "Strategic delegation in Nash bargaining," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(2), pages 784-794, March.

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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