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Über dieses Buch

This book constitutes the proceedings of the 15th International Conference on Group Decision and Negotiation, GDN 2015, held in Warsaw, Poland, in June 2015. The GDN meetings aim to bring together researchers and practitioners from a wide spectrum of fields, including economics, management, computer science, engineering, and decision science.

From a total of 119 submissions, 32 papers were accepted for publication in this volume. The papers are organized into topical sections on group problem structuring and negotiation, negotiation and group processes, preference analysis and decision support, formal models, voting and collective decision making, conflict resolution in energy and environmental management, negotiation support systems and studies, online collaboration and competition, and market mechanisms and their users.



Group Problem Structuring and Negotiation


Effects of Small Group Discussion: Case Study of Community Disaster Risk Management in Japan

Community governance needs a small group discussion among community people to identify their concerns, to share them each other and to generate better alternatives for solving problems. A planner should manage the discussion to achieve these objectives. This study analyzed the small group discussion in the community disaster risk management by using text mining. Correspondence analysis was applied to the text data of the discussion. Analytical results revealed the characteristics and effects of small group discussion.

Madoka Chosokabe, Yukino Tsuguchi, Hiroyuki Sakakibara, Takanobu Nakayama, Shota Mine, Daisuke Kamiya, Ryo Yamanaka, Toshiaki Miyaguni

Understanding PSM Interventions Through Sense-Making and the Mangle of Practice Lens

In this paper we seek to understand how individuals, as part of a group facilitated modelling setting, commit themselves to a set of actions, as a basis of sense-making, sense-giving and coordinated actions. For this we introduce Pickering’s Mangle of Practice to understand the practice of a group facilitated modelling setting. Using video data from a group modelling building exercise, we analyze how individual actors framed their circumstances in communication with one another and how through facilitated model building this affected their subsequent interpretation and decisions as the process unfolds. We show how, through the models as objects enhanced the interaction between verbal communication, expressed and felt emotion and material cues led to collective behavior within the group. With our study we extend prior research and elaborate on the role of objects and materiality as part of group decision making.

Leroy White, Mike Yearworth, Katharina Burger

Negotiation and Group Processes


Social Consciousness in Post-conflict Reconstruction

This paper sheds light on the complexities intergovernmental organizations are facing during post-conflict reconstruction. The article discusses the added-value of Social Responsibility in the context of the Comprehensive Approach, involving collaboration amongst defense, diplomacy and development. To better understand the role of public-private partnerships in enabling Corporate Social Responsibility activities we conducted a single case study. The aim is to better grasp the organizational design of the Comprehensive Approach as well as to comprehend the type of relations during the decision-making process. The results of the content analysis of 8 semi-structured interviews with senior diplomats, military commanders, and civilian entrepreneurs support the discussion. Particular attention is paid to the existing variety in norms relevant to the involvement of the private sector, social consciousness, and the potential role of public-private partnerships in enabling stabilization as well as reconstruction in post-conflict zones. Lessons learned are presented in the conclusion.

Ben Gans, Anne-Françoise Rutkowski

How to Order the Alternatives, Rules, and the Rules to Choose Rules: When the Endogenous Procedural Choice Regresses

A procedural choice problem occurs when there is no ex ante agreement on how to choose a decision rule nor an exogenous authority that is strong enough to single out a decision rule in a group. In this paper, we define the manner of procedural selection as a relation-valued procedural choice rule (PCR). Based on this definition, we then argue for some necessary conditions of a PCR. One of the main findings centers on the notion of consistency, which demands concordance between judged-better procedures and judged-better outcomes. Specifically, we found that the consistency principle and a modified version of the Pareto principle yield a simple impossibility result. We then show how the weakening of these conditions results to a degenerate PCR or the existence of a procedural veto. Finally, we show that the restriction of the preference domain to an extreme consequentialism can be seen as a positive result.

Takahiro Suzuki, Masahide Horita

The Hidden Costs of the Door-in-the-Face Tactic in Negotiations

Past studies have shown that Door-in-the-face tactics can induce compliance from negotiators. This research examines the hidden costs of the use of the Door-in-the-face tactic in dyadic negotiations. It shows that learning about opponents’ use of this tactic affects negotiators’ feelings of mistreatment and their behaviours in the subsequent negotiation. It also induces negotiators’ covert, retaliatory behaviour. The results showed that negotiators who had dealt with opponents using the Door-in-the-face tactic made larger demands and attained higher outcomes in the subsequent negotiation. It was also found that feelings of mistreatment by opponents tended to spread over into future negotiations. Feelings of mistreatment mediated the effect of opponents’ use of Door-in-the-face tactics on covert retaliation. Implications of results are discussed and directions for future research are given.

Ricky S. Wong

Preference Analysis and Decision Support


Understanding and Using the Group Decision Analysis Model

Decision analysis is usually thought of as a model for decisions with a single decision-maker. Many attempts to extend decision analysis to group decisions have led to results indicating how it cannot be done. Other analyses, such as the well-known impossibility theorem of Arrow (1963) [


], have tried to combine rankings of alternatives by individual group members to produce a group ranking. As a result, there had been no logically consistent way to extend the principle of decision analysis to group decisions. A different approach was used in Keeney (2013), where each member of a decision-making group could have a different decision frame for their common decision. Using the assumptions of decision analysis for each member’s analysis of their group decision and using an analogous set of decision analysis assumptions for the group decision to combine the member’s decision analyses produced a group decision analysis model. This article discusses the concepts and intuitive logic for the model and practical aspects of applying it.

Ralph L. Keeney

Distributive Justice, Legitimizing Collective Choice Procedures, and the Production of Normative Equilibria in Social Groups: Towards a Theory of Social Order

This paper focuses on group normative procedures and distributional norms that are utilized in functioning groups in the production/generation of normative equilibria, that is, the major basis of social order in groups and communities. The group is an organizational arrangement with some degree of division of labor and characterized by group purposes and goals, a normative order and patterns of interaction and output. We identified three patterns of particular interest: (1) legitimation procedures in groups to resolve conflicts and make collective choices; (2) patterns of just outcomes satisfying the normatively prescribed group outcomes/outputs of a principle of distributive justice’s; (3) normative equilibria, which are group patterns of interaction or collective decision that tend to stability because they satisfy or realize one or more key group norms.

Tom Burns, Nora Machado, Ewa Roszkowska

A Multiple Criteria Model for Comparison of Subjective-Objective Evaluations and Its Application

A multiple criteria decision model addressing the comparison of both subjective and objective evaluation results is proposed in this paper. Firstly, based on cluster analysis, a method to select representative sample data set from all alternatives under evaluation is designed; next, experts are invited to review these sample data and dominance-based rough set theory is used to analyze expert decisions in format of a set of decision rules; then, these trained decision rules are applied to all alternatives and hence, an objective-oriented results can be obtained and used to compare with the alternatives’ self-evaluation results which contains subjective orientation; finally, the method is applied to analyze the graduate’s leaning ability to demonstrate its feasibility.

Ye Chen, Yao Li, Wangqun Sun, Haiyan Xu

Using Surrogate Weights for Handling Preference Strength in Multi-criteria Decisions

Various proposals for how to eliminate some of the obstacles in multi-criteria decision making exist and methods for introducing so called surrogate weights have proliferated for some time in the form of ordinal ranking methods for the criteria weights. Considering the decision quality, one main problem is that the input information to ordinal methods is often too restricted. At the same time, decision-makers often possess more background information, for example regarding the relative strengths of the criteria, and might want to use that. Thus, some form of strength relation often exists that can be utilised when transforming orderings into weights. In this article, using a quite extensive simulation approach, we suggest a thorough testing methodology and analyse the relevance of a set of ordering methods including to what extent these improve the efficacy of rank order weights and provide a reasonable base for decision making.

Mats Danielson, Love Ekenberg

Veto Values Within MAUT for Group Decision Making on the basis of Dominance Measuring Methods with Fuzzy Weights

In this paper we extend the additive multi-attribute utility model to incorporate the concept of veto in a group decision-making context. Moreover, trapezoidal fuzzy numbers are used to represent the relative importance of criteria for each DM, and uncertainty about the alternative performances is considered by means of intervals. Although all DMs are allowed to provide veto values, the corresponding vetoes are effective for only the most important DMs. They are used to define veto ranges. Veto values corresponding to the other less important DMs are partially taken into account, leading to the construction of adjust ranges. Veto and an adjust function are then incorporated into the additive model, and a fuzzy dominance matrix is computed. A dominance measuring method is then used to derive a ranking of alternatives for each DM, which are then aggregated to account for the relative importance of DMs.

Pilar Sabio, Antonio Jiménez-Martín, Alfonso Mateos

Inaccuracy in Defining Preferences by the Electronic Negotiation System Users

In this paper we analyze how preferences are defined by negotiators in electronic negotiations if a SAW-based negotiation offer scoring system is used. We analyze a dataset of the Inspire electronic negotiation system, containing the transcripts of bilateral negotiation experiments and study how the negotiators use the preferential information provided in the case description and map it into a system of issues and options ratings in the discrete negotiation problem. We measure the accuracy of the preference systems by comparing the user-defined scoring systems with the reference ideal ones that stem directly from precise initial graphical information. Two notions of accuracy are used: (1) ordinal accuracy which measures if the negotiators followed the ranking order only; and (2) cardinal accuracy, defined by means of an original formula that takes into account weighted normalized distances between the negotiator’s own system and the reference scoring one.

Ewa Roszkowska, Tomasz Wachowicz

A Multi-criteria Group Decision-Making Approach for Facility Location Selection Using PROMETHEE Under a Fuzzy Environment

This paper presents a Z-PROMETHEE with Z-numbers as a new representation of vague information for a facility location selection (FLS) problem. The selection of a facility location, which is a kind of a multi-criteria decision making (MCDM) problem, should be considered from a strategic point of view. In a real-world situation, MCDM problems are generally under uncertainty. In order to overcome such a problem, fuzzy sets can be applied with the PROMETHEE to allow experts to combine inadequate information into the decision method. However, the fuzzy PROMETHEE also has some defects. The main problem is that the certainty of information is not taking into account. For explanation of real-life information, fuzziness and degree of the certainty of information are indispensable. In the proposed method, Z-numbers are used to evaluate the weights of the criteria. Hence, in comparison with the fuzzy model, the PROMETHEE with a Z-number (i.e., Z-PROMETHEE) can symbolize real life problems more realistically.

Reza Tavakkoli-Moghaddam, Alireza Sotoudeh-Anvari, Ali Siadat

An Interval-Valued Hesitant Fuzzy TOPSIS Method to Determine the Criteria Weights

In a multi-criteria group decision analysis, numerous methods have been developed and proposed to determine the weight of each criterion; however, the group decision methods, except AHP, have rarely considered for obtaining the criteria weights. This study presents a new TOPSIS method based on interval-valued hesitant fuzzy information to compute the criteria weights. In this respect, the weight of each expert and the experts’ judgments about the criteria weights are considered in the proposed procedure. In addition, an application example about the location problem is provided to show the capability of the proposed weighting method. Finally, results of the proposed method are compared with some methods from the related literature in the presented illustrative example to show the validation of the proposed interval-valued hesitant fuzzy TOPSIS method.

Reza Tavakkoli-Moghaddam, Hossein Gitinavard, Seyed Meysam Mousavi, Ali Siadat

Multiple Attribute Group Decision Making Under Hesitant Fuzzy Environment

Hesitant fuzzy set is a very useful means to depict the decision information in the process of decision making. In this paper, motivated by the extension principle of hesitant fuzzy sets, we export Einstein operations on fuzzy sets to hesitant fuzzy sets, and develop some new arithmetic averaging aggregation operators, such as the hesitant fuzzy Einstein weighted averaging (

$$\mathrm{{HFW}}{\mathrm{{A}}^\varepsilon }$$




) operator, hesitant fuzzy Einstein ordered weighted averaging (

$$\mathrm{{HFOW}}{\mathrm{{A}}^\varepsilon }$$




) operator, and hesitant fuzzy Einstein hybrid weighted averaging (

$$\mathrm{{HFHW}}{\mathrm{{A}}^\varepsilon }$$




) operator, for aggregating hesitant fuzzy elements. Finally, we apply the proposed operators to multiple attribute group decision making with hesitant fuzzy information.

Weize Wang , Qi-An Lu, Li Yang

Formal Models


Using Ordinal Regression for Interactive Evolutionary Multiple Objective Optimization with Multiple Decision Makers

We present an interactive evolutionary multiple objective optimization (MOO) method incorporating preference information of several decision makers into the evolutionary search. It combines NSGA-II, a well-known evolutionary MOO method, with some interactive value-based approaches based on the principle of ordinal regression. We introduce several variants of the method distinguished by an elitist function indicating a comprehensive value that each solution represents to the group members. The experimental results confirm that all proposed approaches are able to focus the search on the group-preferred solutions, differing, however, with respect to both part of the Pareto front to which they converge as well as the convergence speed measured in terms of a change of utilitarian value of the returned solutions.

Miłosz Kadziński, Michał Tomczyk

Fiscal-Monetary Game Analyzed with Use of a Dynamic Macroeconomic Model

The paper deals with the fiscal-monetary game. In the game the fiscal and the monetary authorities take decisions on the choice of the optimum strategy from the point of view of realization of their respective economic objectives. A macroeconomic model has been constructed and used to represent the interrelations between, on the one hand, the instruments of fiscal policy and of the monetary policy, and, on the other hand – the economic effects resulting from their application. The best response strategies of the authorities and the Nash equilibrium state are analyzed. The simulation results obtained indicate that in a general case the Nash equilibrium is not Pareto optimal. It means that the policies should be coordinated and that respective negotiations leading to a Pareto-optimal consensus are needed.

Lech Kruś, Irena Woroniecka-Leciejewicz

Voting and Collective Decision-Making


A Framework for Aiding the Choice of a Voting Procedure in a Business Decision Context

In business organizations a group decision process, which takes aggregation of DMs’ final choices into account, usually uses a voting procedure (VP). Therefore, a relevant part of the decision process consists of choosing the VP. Since all VPs have some drawbacks that may occasionally lead to undesirable outcomes it is important to characterize decision settings that make certain performance criteria particularly pertinent for choosing a VP. In this paper, it is assumed that this decision should be made by the DMs while the analyst will give some methodological and technical aid, and that a specific decision model will be used. Therefore, this paper presents a framework for aiding the choice of a VP in a business organization decision context, based on an MCDM model.

Adiel Teixeira de Almeida, Hannu Nurmi

Vote Swapping in Representative Democracy

We investigate group manipulation by vote exchange in two-tiers elections, where voters are first distributed into districts, each with one delegate. Delegates’ preferences result from aggregating voters’ preferences district-wise by means of some aggregation rule. Final outcomes are sets of alternatives obtained by applying a social choice function to delegate profiles. An aggregation rule together with a social choice function define a constitution. Voters’ preferences over alternatives are extended to partial orders over sets by means of either the Kelly or the Fishburn extension rule. A constitution is Kelly (resp. Fishburn) swapping-proof if no group of voters can get by exchanging their preferences a jointly preferred outcome according to the Kelly (resp. Fishburn) extension. We establish sufficient conditions for swapping-proofness. We characterize Kelly and Fishburn swapping-proofness for Condorcet constitutions, where both the aggregation rule and the social choice function are based on simple majority voting. JEL Class D71, C70.

Hayrullah Dindar, Gilbert Laffond, Jean Lainé

The Choice of Voting Rules Based on Preferences over Criteria

The community of voting system experts is largely divided on the issue of the best voting rule. Some – perhaps a majority – of the community stresses the performance related to Condorcet’s intuition, while others take a more “positional” view of the voting rules. This paper approaches the choice of the rule from the viewpoint of the individuals that will subsequently be applying the chosen rule in solving opinion aggregation problems. Our first starting point is that each individual has a preference ranking over the criteria. This starting point reduces the rule selection into the classic social choice problem. Using the Borda count one is able to construct a vector of weights that reflects the importance that the individuals assign to various criteria. Using the analytic results on the compatibility of various rules and criteria we can then associate each rule with a value that reflects the aggregated opinion of the importance criteria. Hence, the choice of the rules gets its justification from the views that the individuals have on the significance of the criteria. Our second starting point is based on weights that individuals associate with the criteria. The collective weights are then determined as in range voting. Again a justification of the chosen rules can be expressed in terms of the importance that individual assign to criteria.

Hannu Nurmi

Conflict Resolution in Energy and Environmental Management


Controversy Over the International Upper Great Lakes Study Recommendations: Pathways Towards Cooperation

Unprecedented low water levels and a perception of inaction after a five-year study of the International Upper Great Lakes led activists to stir up controversy. This paper analyzes this conflict just prior to the release of the International Joint Commission’s report on April 15, 2013 and proposes resolutions towards cooperation and improved public perception.

Monika Karnis, Michele Bristow, Liping Fang

Option Prioritization for Three-Level Preference in the Graph Model for Conflict Resolution

A three-level preference (or called strength of preference) ranking structure based on option prioritization is developed within the paradigm of the Graph Model for Conflict Resolution. In a strategic conflict, a decision maker usually controls various courses of actions which are referred to as options. An option-based preference structure could efficiently model preferences under a complex conflict situation. There are three preference representations in a graph model for simple preference (or two-level preference), including Option Weighting, Direct Ranking, and Option Prioritizing in which the Option Prioritizing approach is the most effective. Therefore, the Option Prioritizing approach is extended to three-level preference from the two levels of preference in this paper. This proposed approach is more effective and convenient for modeling preference and is easy to implement into a decision support system. A specific case study is provided to show how three-level preference is calculated using the proposed approach.

Yuhang Hou, Yangzi Jiang, Haiyan Xu

Negotiation Support Systems and Studies


The Role of Communication Support for Electronic Negotiations

Each (electronic) negotiation consists of communication and decision making. We will discuss relevant theories for a strong communication support, in particular for electronic negotiations. To this end, we will looks at the research area of communication modelling that has provided the Language-Action Perspective (LAP) with its underlying theories. We will show how LAP can be operationalised for e-negotiations using the negotiation support system Negoisst as the one example having implemented these concepts. In general, we will argue for the vital role of communication support in e-negotiation processes.

Mareike Schoop

More Than Words: The Effect of Emoticons in Electronic Negotiations

While affect plays a similar fundamental role in both, electronic and face-to-face negotiations, the expression of emotions in computer-mediated communication differs considerably from face-to-face settings. The aim of this experimental study is to analyze how the systematic use of emoticons – facilitated with software – affects negotiation behavior in alternative computer-mediated negotiation settings. With a 2 × 2 design comparing system-induced emoticon use with a text-only condition in synchronous chat or asynchronous e-mail mode we isolate effects of emoticons in these different communication settings. Results show that emoticons are used in different functions, i.e. mainly to supplement and support text messages and less often to mitigate its content. Furthermore, emoticon support increases the communication of positive affect in asynchronous negotiations while it decreases communication of negative affect and distributive negotiation behavior in synchronous negotiations. These findings propose that advancing communication quality via contextualization of affective information in negotiation support systems is promising.

Johannes Gettinger, Sabine T. Koeszegi

Online Collaboration and Competition


A Longitudinal Case Study on Risk Factor in Trust Development of Facilitated Collaboration

Computer-mediated collaboration is widely used in various organizations. Trust has proved to have an influence on online collaboration. This paper aims to conduct an in-depth investigation on an important trust factor during online collaboration, which is risk. The research samples were collected from Chinese part-time MBA students. They were invited to use the group support system (GSS) designed under the theory of facilitated collaboration with the thinkLets method to support the online collaboration. During this longitudinal research, questionnaires were collected at three stages, namely, at the beginning, during and at the end of the experiment, interviews were also conducted. Results show the level of trust was raised over time. Among all the trust factors, risk shows the most significant change, and the level of risk is decreased. Finally, the correlation analysis was conducted to detect the relationship between risk and trust in facilitated collaboration.

Xusen Cheng, Shixuan Fu, Yuxiang Peng

Intention to Repurchase Group Coupon Service: The Intertwined Effect of Service Quality of Vendor and Service Provider

The success of Groupon creates many followers who attract consumers by providing location-based electronic coupons with big discount. Despite of its great growth rate, there were many complaints from consumers. The purpose of this research is to learn how service quality of vendors (i.e. the websites selling the electronic coupons) and service providers (i.e. the stores where consumers can redeem coupons) interactively affect the intention to repurchase coupons from a vendor or a service provider. The results indicate that service quality of both the vendor and the service provider will affect the intention to repurchase coupons from vendor, but the service provider’s service quality has higher effect. It means that if a service provider does not provide good quality, it will affect the sales of the coupon vendor. The service quality of service provider will affect the intention to buy service from the service provider at either the regular price or the coupon price. These findings indicate the coupon vendor should be careful in recruiting service providers.

Hsiangchu Lai, Shu-Hwa Hsu

Defining Human-Machine Micro-Task Workflows for Constitution Making

This paper presents a novel task-oriented approach to crowdsource the drafting of a constitution. By considering micro-tasking as a particular form of crowdsourcing, it defines a workflow-based approach based on Onto2Flow, an ontology that models the basic concepts and roles to represent workflow-definitions. The approach is then applied to a prototype platform for constitution-making where human workers are requested to contribute to a set of tasks. The paper concludes by discussing previous approaches to participatory constitution-making and identifying areas for future work.

Nuno Luz, Marta Poblet, Nuno Silva, Paulo Novais

Creating Value Through Crowdsourcing: The Antecedent Conditions

The benefits of crowdsourcing are becoming more widely understood and there is a methodological move towards organisations using “participatory models” to engage stakeholder communities and align decision making more closely to the needs of stakeholders. Many tasks can now be distributed to “the crowd” for action. Our research aims to understand the antecedent conditions that inform management decisions to adopt crowdsourcing techniques as a means of value creation. Our preliminary findings suggest that to be successful, three antecedent criteria must be met – the task being crowdsourced must be modular in nature, a community of interest must be engaged, and there needs to be a structural capability within the organisation to be able to facilitate the engagement of the crowd and utilise the output from the crowd in a manner that creates value.

Michael Rowe, Marta Poblet, John Douglas Thomson

On Integrating an IS Success Model and Multicriteria Preference Analysis into a System for Cloud-Computing Investment Decisions

Investing in cloud computing technology is one of the latest trends in IT. This is a multi criteria investment decision involving many stakeholders and a sequence of coordinated assessment activities that are strategic, qualitative (technical) and quantitative (financial) in nature. This paper integrates an information system (IS) success model with preference elicitation techniques drawn from the multi-criteria decision-making literature. We also show how this decision model can be extended as a vendor negotiation tool. Finally, we describe a prototype Decision Support System (DSS) featuring this model.

Rangaraja P. Sundarraj, Sathyanarayanan Venkatraman

Demand Management with Energy Generation and Storage in Collectives

In this paper, we focus on demand side management in consumer collectives with community owned renewable energy generation and storage facilities for effective integration of renewable energy with the existing fossil fuel-based power supply system. The collective buys energy as a group through a central coordinator who also decides about the storage and usage of renewable energy produced by the collective. Our objective is to design coordination algorithms to minimize the cost of electricity consumption of the consumer collective while allowing the consumers to make their own consumption decisions based on their private consumption constraints and preferences. Minimizing the cost is not only of interest to the consumers but is also socially desirable because it reduces the consumption at times of peak demand. We develop an iterative coordination algorithm in which the coordinator makes the storage decision and shapes the demands of the consumers by designing a virtual price signal for the agents. We prove that our algorithm converges, and it achieves the optimal solution under realistic conditions. We also present simulation results based on real world consumption data to quantify the performance of our algorithm.

Ronghuo Zheng, Ying Xu, Nilanjan Chakraborty, Michael Lewis, Katia Sycara

Market Mechanisms and Their Users


Back-End Bidding for Front-End Negotiation: A Model

Negotiations allow parties to exchange offers in search for mutually agreeable solutions. The exchange process is usually flexible and ill-structured and it may involve a set of multiple issues, which may change in the course of negotiation. Auctions, on the other hand feature strict rules regarding bid submission and evaluation. Most of the existing auctions allow for single attribute bids. This paper proposes an approach by which a software agent solution could emulate a multi-attribute negotiation front-end while bidding in single-attribute auction marketplaces. The bidding model is based upon concession-making curve introduced in prior work on electronic negotiations. Using data collected from eBay the paper shows that bidding across several attributes would result in higher utility outcome, and faster results than bidding within a single attribute set.

Réal A. Carbonneau, Rustam Vahidov

Lot-Rolling – Supply Chain Negotiation in a Two-Stage Multi-echelon System

Interdependencies between procurement and production processes between buyers and sellers concerning order and production lots require coordination to minimize the costs in a supply chain. This paper compares distributed and central decision-making in lot determination to different negotiation mechanisms – with the aim to overcome shortcomings of the two former approaches – in a two-stage multi-echelon supply chain.

Michael Filzmoser

Procurement Auctions: Improving Efficient Winning Bids Through Multi-bilateral Negotiations

Auctions have been used in the procurement of heterogeneous products, produced and delivered after the auctions conclude, as well as services. In these situations the quasi-linearity assumption of the buyer and the sellers is violated and the price and other attributes are interrelated. The relationship between price and other attributes is illustrated here with two exchanges in which the market participants are characterized by Cobb-Douglass production functions. It shown that even in the simplest case, when the contract curve is linear, the price and other attributes are interrelated. This relationship becomes more complex for non-linear contract curves. The paper shows that in these cases the auction does not maximize social welfare, i.e., it is an inefficient mechanism. Furthermore, even if the winning bid is an efficient solution, a win-win solution which dominates this bid may be possible. The buyer needs to engage in multi-bilateral negotiations in order to seek joint-improvements. The purpose of the negotiation is to search for side-payments.

Gregory E. Kersten


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