Bilateral negotiation decisions with uncertain dynamic outside options

Abstract

Negotiation is an important phase of e-contracting. E-contracting requires a proper negotiation model to effectively support negotiation decisions or automate the negotiation process. When an entity negotiates with a potential contractor, there may be some alternatives that exist simultaneously with the potential contractor, and/or some may present themselves in the future. We present a model for bilateral contract negotiations that considers the uncertain and dynamic outside options. Outside options affect the negotiation strategies via their impact on the reservation price. The model is composed of three modules, single-threaded negotiations, synchronized multi-threaded negotiations, and dynamic multi-threaded negotiations. These three models embody increased sophistication and complexity. The single-threaded negotiation model provides negotiation strategies without specifically considering outside options. The model of synchronized multi-threaded negotiations builds on the single-threaded negotiation model and considers the presence of concurrently existing outside options. The model of dynamic multi-threaded negotiations expands the synchronized multi-threaded model by considering the uncertain outside options that may come dynamically in the future. Experimental analysis is provided to characterize the impact of outside options on the negotiation strategy and performances.