Commitment Models

We have discussed the literature about bilateral negotiation and decommitments.

On bilateral negotiation, we concluded that the heuristic negotiation tactics will be simple, light (limited negotiation resources, requirement R4) and easy to use and will allow us to consider all the relevant requirements. They allow us to have costly and time-consuming service preparation (requirementR1), because we can easily translate such limits to deadlines and reservation prices.⁶⁰.

And although we did not discuss it explicitly, our marketplace should also fulfil the requirements of openness (requirementR5), heterogeneity (requirementR3)⁶¹ and incomplete information, which does include the availability of some basic information for all parties (requirement R6). Moreover, the marketplace should allow for changes in circumstances (requirementR4). These requirements are not especially relevant to our literature review, because most approaches we discussed could have filled these requirements.

We also concluded that the leveled-commitment contracts is the best approach to manage changing circumstances (requirement R2) and the necessary decommit-ments. We will investigate the effects of four different decisions that the parties make in our market environment (performance, reliance, contract and selection) and try to find out what effect the different decommiment policies (rules on de-commitment fees) have on the outcome in terms of common good. For the most part, we use the decisions as they are described in the literature. The literature on many decisions is limited in the sense that models used (if any) are often quite simple or even non-existent and the discussion revolves around general principles.

We will use these principles and basic settings and adapt them to our dynamic service market setting.

60We discuss this process in detail in section3.2.

61Again, the latter can be achieved by choosing some parameters at random, see section 3.2 for details.

Because the papers are published in the law and economics literature, they often consider incomplete information as a question of evidence to be settled in a court of law and do not consider other options or more complicated settings. We will therefore extend these models to settings where information is incomplete and create decommitment policies that can address this situation quickly without a need for third parties or complicated procedures. Moreover, the discussion in the literature is often brief and limited to identifying the optimal policy in the circum-stances. Sometimes, this policy may be complicated or depend on information that is not readily available and it is, therefore, useful to discuss also other policies and investigate how well simpler or otherwise sub-optimal policies might perform in different settings. We also investigate the role of some other characteristics and rules of the marketplace such as population sizes or possibility of re-entry, to name a few.

Our main focus will be on the performance decision, because it is the most es-tablished of the four decisions and because legal rules may give us pointers for deciding what to do in special circumstances or under incomplete information.

2.4.2 Concurrent Bilateral Negotiation Strategies

We have discussed the literature on concurrent bilateral negotiation and have given an example of how interconnected negotiations may be managed. We have identified several methods in the current state of art, which will be useful to us and there was, for example, models where the openness (requirement R5) was considered to a reasonable extent, although we considered having distributions of future opponents a bit excessive and will use empirical data instead. The existing literature also provided adequate support for our requirement of costly and time-consuming service preparation (requirement R1). Also, many of the models we discussed made quite strong assumptions on available information. We have made our own assumptions (requirementR6) that are, compared to the state of the art, quite strict in some places and quite generous in others. We believe, however, that at least some of our assumptions can be relaxed in future work with limited loss of performance.

However, we have also identified some quite significant gaps in the state of the art.

These are mostly connected to the managing concurrent negotiations:

• concurrency control: there is no discussion of selecting the number of concur-rent negotiations in the literature, although this seems quite essential task in

a concurrent negotiation, because it directly influences the number of extra contracts the buyer agent may have to decommit from and also because the concurrent negotiation may be computation-intensive and resources that can be used for negotiation usually have limits (requirementR4),

• opponent selection: there is also no discussion of choosing the best opponents to have the concurrent negotiations with, although in most markets, the sellers are highly heterogeneous (requirement R3),

• negotiation tactics: although the literature had some good ideas, there is some room for improvement. We need to be able to estimate the outcomes for our negotiations and chances of success and none of the tactics in the literature offered us that. Also all the concurrent bilateral negotiation models used very simple negotiation tactics on the opponent side (often simple time-dependent tactics) and we want the sellers to use more diverse tactics.

• changing circumstances: a case where the buyer (and the seller) have a probability that they may not want the contract to go through in the end but want to decommit at some point (requirementR2), has not been considered, in the literature, especially not in the context of concurrent negotiation,

• interconnected negotiations: interconnected negotiations have not been con-sidered in the context of concurrent bilateral negotiation

Now, to address these shortcomings we need to develop a concurrent bilateral nego-tiation model that includes support for interconnected negonego-tiations. We also need to pay extra care to designing the structure and inner workings of a negotiation-coordinating controller: how these mostly new functions can be made to work well together, so that new strategies and methods can be easily added. We also need to work on the division of labour between the different levels of the model.

Each such level should have their own areas of expertise and they should not usu-ally second-guess each other’s recommendations, except if one level has a wider view and needs to adjust a recommendation, but even then it should not just do whatever it pleases but use the expertise of the other levels.

Commitment Models

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The Marketplace Model

Now that we have discussed the state of the art and its shortcomings, it is time to explain in detail how we are going to address some of the issues we have identified.

In other words, we will now move to discuss our research. As discussed in the in-troduction, we will explain our work in two major parts each consisting of several chapters. The common thread through all our work is to consider how the decom-mitment policies affect the way an intelligent market participant should behave in a marketplace. In part I, we are going to discuss system-level effects of decom-mitment policies. If and when the decomdecom-mitment policies influence behaviour of the individuals in the market and if and when the market outcomes (and hence the welfare effects of a marketplace) follow from the actions of the participants, it can be said that the decommitment policies influence the common good the market can produce. In other words, in part I, we are interested in how the way the market participants adapt to the different decommitment policies affects the common good or the sum of utilities of all participants.¹

Specifically, in part I, we use a relatively simple market setting and keep the adaptations the parties use simple and straight-forward and investigate how the decommitment policies affect the big picture to get a clearer view on the role the decommitments and decommitment policies can play in an electronic marketplace.

In more detail, we discuss the underlying theory and our results in the market setting in five parts. First, in this chapter, we introduce our marketplace model and its implementation and in the four subsequent chapters we discuss each of the four major decisions that the parties make to adapt their behaviour to the

1We discuss the other aspect, the individual-level strategies mainly in the part II, although some basics are discussed also in this part.

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decommitment policy in force (this corresponds to research contributions C1–

C4):

• performance decision (chapter 4, contribution C1),

• reliance decision (chapter 5, contribution C2),

• contract decision (chapter 6, contribution C3), and

• selection decision (chapter 7, contribution C4).

For our marketplace model, we consider a market of buyers and sellers for one service. We refer with subscript b to a single buyer (consumer) and with subscript s to a single seller (provider) in this market. We are especially interested in their utility, Ub and Us, respectively. The time t is discrete and divided into turns.

We assume that all participants expect the delivery of the service to occur at the same time tdelivery (there can be separate markets for different delivery times and other services but we are only interested in one market). We first explain how the market works (section 3.1), then we discuss how the negotiations proceed and how the parties get the parameters for the negotiations (section3.2). We will then discuss how we make the parties consider issues associated with decommitment on the contracts that have been formed (section 3.3) and how we implemented this system (section 3.4).

3.1 Matching and Entries

The buyers and sellers in the market are paired at random by the marketplace.

This means that each provider will be given one consumer to negotiate with (and vice versa). The pairs then negotiate for 100 turns on the price of the service. Both parties use simple exponential time-dependent heuristic tactics (section 2.2.1.2), in which the parameter β is selected at random. Once all negotiations finish, the parties remaining in the market are again matched at random. This process (from the random matching to the end of negotiations) is repeated 10 times. The entries and exits can occur at any time, but the parties are only matched at turns that can be divided by 100 without a remainder (i.e. 0, 100, 200, ...). If there is an unequal number of buyers and sellers in the market, some members of the larger population will not get an opponent and will have to wait until the next matching.

The contracts are performed when the negotiations end, thus tdelivery= 1000.

Size Initial Entry Size (n0) Intensity (ib)

Tiny 0 0.02

Very Small 0 0.1

Small 25 0.2

Medium 50 0.4

Large 100 0.8

Very Large 250 1.5

Huge 500 4.0

Table 3.1: Population sizes.

In the beginning (t = t0 = 0) there are n0 buyers and n0 sellers in the market.

This is to ensure that negotiations can start from the beginning. Over time, some buyers and sellers enter and some may exit. The numbers of entries for the parties are independent variables, but follow the same standard Poisson distribution, with the parameter λ(t) = i^tlastEntry_t ^−t

lastEntry , where i is the basic entry intensity, tlastEntry the last turn that entries are possible and t is the current turn. This formulation means that entries are more probable earlier in the experiment. This is realistic because the parties are more likely to find a contract if they enter early. This is especially true for the providers, because we assume that the provision of the service takes time and they cannot wait until the last moment to find a consumer. In the experiments we discuss in this thesis, we have tdelivery = 1000, tlastEntry,s = 800 and tlastEntry,b = 900 and we use different population sizes as described in table 3.1.