Equilibria of the sealed-bid mechanism for bargaining with incomplete information (Q1119188)

We study the Nash equilibria of the sealed-bid bargaining mechanism with incomplete information, a nonzero-sum game. For the case of uniform priors, we describe two uncountably numerous families of equilibria: the first has differentiable strategies; in the second the strategies are step-functions. The efficiencies of these equilibria range from ``second best'' to zero. For independent nonuniform priors, we show that a similar situation obtains. These results seem discouraging with regard to using the sealed-bid mechanism in practice. The mechanism might be salvaged, however, if bargainers turn out to confine themselves to linear-strategy equilibria.