ITS 424: Electronic Business
ND HUNG
Sirindhorn International Institute of Technology
[email protected]
April 20, 2015
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How Internet reduce transaction costs
Reducing visibility costs
Reducing bargaining costs
Automated bargaining/negotiation
Reducing policing and enforcement costs
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Reducing bargaining costs
Successful stories:
Ebay
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Ideal model of two-party negotiations
Each agent participating in negotiation fully knows the following
information
A = {β, δ}: the participating agents
D: a set of deals
ua : D → R is the utility function of agent a ∈ A.
ra ∈ R + : reservation value for agent a ∈ A
Z = {d ∈ D | uβ (d) ≥ rβ and uδ (d) ≥ rδ }
P: concession negotiation protocol
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Minimal concession strategy
1
Start negotiation with the most preferred deal in the zone of
agreements, and
2
Concede minimally if the other agent has conceded in the
previous step or it is making a third move of the negotiation, and
3
Standstill if the other agent standstills in the previous step.
Proven result: The minimal concession strategy is in symmetric Nash
equilibrium. That is, if one agent uses this strategy, then the other
agent can not do better by not using this strategy.
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Extending the ideal model
We will consider two extensions:
Reward-based negotiation: During negotiation about a main
product/service, seller (resp. buyer) could introduce (request) for
value-added products/services
Zone of agreement changes during negotiation by this new kind of
moves.
Multi-party negotiation: more than one seller/buyer
like real market.
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Reward-based negotiation
δ is an Industrial Estate Manager
β is an investor looking for a land to set up a factory.
Suppose the initial zone of agreement is Z = {97, 98, 99, 100}
rβ = 100
rδ = 97
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Reward-based negotiation
Negotiation: β : 97, δ : 100, β : 98, δ : 99
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Reward-based negotiation
Suppose that Investor needs waste disposal service.
Reservation value of Investor for waste disposal is 5
Minimal market price of waste disposal is 4
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Reward-based negotiation
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Reward-based negotiation
Suppose Estate Manager has a waste-disposal facility
Estate Manager’s reservation value for waste-disposal is 2
Note: cheaper than the minimal market price (4)
because difference in transaction costs
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Reward-based negotiation
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Best strategy for reward-based negotiation
Reward-based minimal concession strategy calls for agent
1
start bargaining with its best offer
2
standstill only if the other agent standstills
3
make only minimal concession in concession move
4
never makes concession moves that leads to successful
termination if there are value-added services to introduce/request
Proven result: The reward-based minimal concession strategy is also
in symmetric Nash equilibrium.
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Multi-party negotiation
A = {β1 , β2 , . . . βn , δ1 , δ2 , . . . δn }: the participating agents
ra ∈ R + : reservation value for agent a ∈ A
Due to difference in transaction costs, buyers have different
reservation values
sellers also have different reservation values.
Suppose that each buyer (seller) will buy (sell) from one seller
(buyer).
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Multi-party negotiation
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Multi-party negotiation
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Multi-party negotiation
Questions:
Which seller a buyer will select to buy from?
β1 will buy from δ1 or δ2 ?
Which buyer a seller will select to sell to?
δ1 will buy from β1 or β2 ?
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Multi-party negotiation
A party can predict the outcome of a negotiation and basing on
this prediction, he can determine if he prefer negotiating with one
party to negotiating with another party.
Roughly speaking, a buyer β prefers negotiating with seller δ to
negotiating with seller δ 0 if
|Zβ−δ | > |Zβ−δ0 |
i.e. the size of the zone of agreement between β and δ is greater
than the size of the zone of agreement between β and δ 0
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Multi-party negotiation
β1 prefers negotiating with δ2
to δ1
β2 prefers negotiating with δ2
to δ1
δ1 prefers negotiating with β1
to β2
δ2 prefers negotiating with β1
to β2
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Multi-party negotiation
Question: Which is a reasonable objective of β2 ?
buy only from δ2 ?
buy from either seller?
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Multi-party negotiation
A = {β1 , β2 , . . . βn , δ1 , δ2 , . . . δn }: the participating agents
Suppose that
rβ1 > rβ2 > · · · > rβn
rδ1 < rδ2 < · · · < rδn
rβn > rδn
then βi will try to negotiate with δj for j ≤ i
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