Reservation price reporting mechanisms for online negotiations

Authors:
Seungwoo Kwon;Byungjoon Yoo;Jinbae Kim;Wei Shang;Gunwoong Lee
Affiliations:
Korea University Business School, Anam-dong, Seongbuk-gu, Seoul 136-701, South Korea;Graduate School of Business, Seoul National University, 599 Gwanangro, Shinlim9-dong, Gwanakgu, Seoul 151-916, South Korea;Korea University Business School, Anam-dong, Seongbuk-gu, Seoul 136-701, South Korea;Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Room429, SiYuan Building. No.55, East Zhongguancun Rd. Haidian Dist., Beijing, 100190, China;Krannert School of Management, Purdue University, West Lafayette, IN 47907-2056, USA
Venue:
Decision Support Systems
Year:
2009

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Abstract

To facilitate online negotiations, this paper proposes a reservation price reporting mechanism (RPR) and its extended version (ERPR), in which negotiators are invited to report their reservation price to a third-party system before initiating negotiations. Analyses using analytical models show that sellers and buyers report their true reservation prices under certain conditions with respect to the back-dragging costs. Analytical models also show that total social welfare can be increased by two reservation price reporting mechanisms. Then lab experiments are conducted to compare the performance of RPR, ERPR and the traditional direct bargaining (TDB). Consistent with the analytical models, results of the lab experiments show that RPR and ERPR reduce the number of negotiation rounds before reaching an agreement and increase negotiators' social welfare. These lab results testify to the efficiency of RPR and ERPR over TDB.