Cooperative vs. Competitive Multi-Agent Negotiations in Retail Electronic Commerce

A key lesson learned from economic and game theory research is that negotiation protocols have substantial, rippling effects on the overall nature of the system. online auctions are increasingly popular negotiation protocols for software agents (and humans) to compete on the prices of goods and services. This paper takes a critical look at these competitive protocols in retail markets from economic, game theoretic, and business perspectives. Our analysis suggests that online auction protocols are, in fact, less efficient and more hostile than would be expected (or desired) in retail markets. Furthermore, we identify the importance of customer satisfaction and propose more cooperative multi-agent decision analysis tools (e..g, Multi-Attribute Utility Theory) and negotiation protocols (e.g., Distributed Constraint Satisfaction) as promising techniques to support it. 1. Retail Market Negotiations Today’s mass market retail is largely defined as monopolistic competition [1]. Whenever improved or unique products (e.g., faster computers or Tamagotchis) create a significant demand, similar products will eventually come to market that are very close (but not perfect) substitutes for the original. This new supply dismantles the monopoly and dissipates the demand. Thus, today’s retail can be described as a competition amongst merchants for consumers’ patronage. The relationship that a merchant wishes to have with its customers, however, is not competitive. On the contrary, today’s retail merchants desire highly cooperative, long-term relationships with their customers to maximize customer satisfaction [2]. This goal of maximizing customer satisfaction is to increase the probability of repeat purchases and new customers through positive reputation. The relationship among today’s merchants and a given consumer is depicted in Figure 1. But what will the landscape of retail look like in the future? Will tomorrow’s online retail look anything like today’s physical-world retail? We are already seeing online businesses that challenge the status quo (e.g., Amazon.com) and technologies that are dramatically changing the face of retail commerce – e.g., agent systems that reduce transaction costs for both merchants and consumers and create personalized and communitybased experiences to help merchants increase sales [3]. However, certain fundamental economic characteristics of retail will likely not change. For example, future online retail markets will still have consumers who wish to satisfy their individual needs with well-matched merchant offerings. It is also likely that monopolistic competition will remain a defining characteristic of most online retail markets. 1 As such, merchants will still strive for highly cooperative, long1 There has been much speculation on the role of intermediaries in online markets. Many believe that intermediaries (e.g., retailers) will be decreasingly relevant as technologies begin to take over their roles and as manufacturers bypass their current distribution channels for direct sales. However, even if this will be our future, the resulting marketplaces will be more competitive (not less) forcing merchants to compete ever more fiercely for consumers’ patronage.