A Simple Bargaining Mechanism That Elicits Truthful Reservation Prices

Brams, Steven J. and Kaplan, Todd R and Kilgour, D. Marc (2011): A Simple Bargaining Mechanism That Elicits Truthful Reservation Prices.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bargaining; truth-telling mechanisms; probabilistic implementation; incomplete information.
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory ; Matching Theory; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J52 - Dispute Resolution: Strikes, Arbitration, and Mediation ; Collective Bargaining; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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