A Simple Bargaining Mechanism that Elicits Truthful Reservation Prices

• Published in: Group decision and negotiation Vol. 24; no. 3; pp. 401 - 413
• Main Authors: Brams, Steven J., Kaplan, Todd R., Kilgour, D. Marc
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer Netherlands 01.05.2015; Springer Nature B.V
• Subjects: Agreements; Bargaining; Bids; Biological and Physical Anthropology; Business and Management; Equilibrium; Expected values; Game theory; Imperfect information; Information sharing; Negotiations; Prices; Probability; Probability distribution; Purchasing; Random variables; Studies; Trade; Truth; Values; Canada; Israel; United Kingdom > UK; United States > US; Probabilistic implementation; Incomplete information; C78; Bargaining; Truth-telling mechanisms; C72
• ISSN: 0926-2644; 1572-9907
• DOI: 10.1007/s10726-014-9395-5

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 1 2 ; if neither offer falls into the interval, there is no settlement. Comparisons are made with other bargaining mechanisms.