Efficient Sequential Bargaining.

Suppose that a seller and a buyer have private valuations for a good and that their respective utilities from a trading mechanism are given by u(subscript 's') and u(subscript 'b'). Consider the problem of maximizing E[('lambda')u(subscript 's') + (1 - 'lambda')u(subscript 'b')] for some weight 'lambda' in the unit interval. It is shown that, if 'lambda' is sufficiently close to zero or one, then the maximum value of this objective function attainable by a static revelation mechanism can be arbitrarily closely approximated by equilibria of the sequential bargaining games in which only a single player makes offers. That is, the welfare bound implied by the revelation principle is virtually attainable in offer/counteroffer bargaining. Copyright 1993 by The Review of Economic Studies Limited.