A Simple Bargaining Mechanism that Elicits Truthful Reservation Prices

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 reservation prices in the 1st stage. If the Buyer reports a higher price than the Seller, then the referee announces that there is the 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 both offers fall into the overlap 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