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Competition, Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations

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Abstract

The paper discusses experiments aimed at comparing multi-attribute reverse auctions and multi-bilateral negotiations for procuring goods with multiple attributes. Both exchange mechanisms involve a buyer purchasing from one of several sellers. Two types of negotiations are considered: verifiable and non-verifiable. They differ in the sellers’ knowledge of the current best offer on the table; in verifiable negotiations the best offer is automatically shown to every participant, which makes it similar to auctions. Online auctions and negotiation systems were used to study auction and negotiation processes, and the mechanisms’ efficiency. The results show that buyers did best using auctions, followed by non-verifiable and verifiable negotiations. We also looked into the differences between auctions and negotiations in terms of their duration, sellers’ and buyers’ involvement, and efficiency and conclude that the behavior of buyers and sellers cannot be explained solely on the grounds of traditional economics. It can, however, be explained on the grounds of social exchange theory and behavioral economics. In multi-bilateral negotiations competition and social behavior coexist. When transparency is introduced the social effect becomes stronger, weakening the impact of competition.

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Notes

  1. We used the “option’s contribution to profit” rather than preferences (option’s part-worth) to make it is easier for students to understand. It is also easier to grasp the profit of a firm rather than its utility and accept that its finance department determines the profit values.

  2. We are indebted to one of the Reviewers for pointing out this possible relationship between risk attitude and the two negotiation formats.

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Acknowledgments

This work has been supported by the grants from the Natural Sciences and Engineering Research Council of Canada (NSERC) and from Concordia University. We are grateful to Charles J. Thomas and two anonymous reviewers for their insightful comments.

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Authors and Affiliations

  1. InterNeg Research Centre, Concordia University, Montreal, Canada

    Gregory E. Kersten

  2. Department of Operations Research, University of Economics, Katowice, Poland

    Tomasz Wachowicz

  3. SLaLS, Carleton University, Ottawa, Canada

    Margaret Kersten

Authors
  1. Gregory E. Kersten
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  2. Tomasz Wachowicz
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Correspondence to Gregory E. Kersten.

Appendix 1: Instructions for the V-MBN Experiment

Appendix 1: Instructions for the V-MBN Experiment

This assignment is worth 100 marks. You will complete this assignment individually. Please read carefully because there is timely information that requires your attention.

Objectives This assignment is designed to provide you with a unique opportunity to engage in procurement, which is a key business activity, and to use a state-of-the-art e-procurement system. It intends to bring hands-on experience to BTM, business and management students who will participate in online business transactions and learn negotiation skills. This assignment illustrates the use of negotiation systems in e-procurement and their roles in the improvement of procurement efficiency and effectiveness, enhancement of business decisions, and establishment of partnerships.

1.1 Participation in E-Procurement Activity

By [Month, Day], you will receive a reminder email with login information to begin the e-procurement activity at: http://invite.concordia.ca/imbins/. The activity starts on [Month, Day \(+\) 2] and will end on or before [Month, Day \(+\) 12].

1.2 Grading Rubric

Please read the criteria for grading as they can inform you about the assignment’s requirements.

1

ONLINE TEST about the business case (given after you read the case online)

20

2

EARLY ENGAGEMENT (1st day—15, 2nd day—8, after that—0)

15

3

PROMPT REPLIES to counterpart’s offers and messages; active participation until the contract is awarded

20

4

GOOD REPRESENTATION of the firm’s interests–effort to get a good contract, no large concessions that could lead to losses

20

5

PROFITABLE CONTRACT; no better contract was possible—20; better contract could have been obtained—10. NO CONTRACT because the winner’s contract would have produced losses to your firm—20. No contract but a profitable contract could have been achieved or contract that produces losses—0

20

6

SUBMITTED GRAPH from the web page (embedded in MS Word file, Name, student ID)

5

7

BONUS for very diligent participation in the whole process. (Condition: full marks for 2, 3, 4 and 5)

10

1.3 Requirements

In this assignment, you represent a company that provides logistics and transportation services (service provider). You want to get a contract from Milika Inc., a large milk producer. This is a one-year contract for transportation of milk to several hundreds of Milika’s customers.

Milika Inc. contacted you and several other providers who also want to get this contract. Only one provider can be awarded the contract.

Milika decided to use an e-procurement system to determine the three most important issues for the contract. Therefore, you and other service providers have to use this system. In order to learn more about the system, you will watch a video in-class. You can also watch the same video online where you can find additional material to help you engage in this e-procurement activity effectively (demo and other resources are at: http://invite.concordia.ca/imbins/).

Please remember that you represent a company and your role is to get the best possible contract for your company. You also need to remember that there are other companies (represented by other students) that want to get the same contract. Therefore, you will need to compete with these other companies. Although only one company can get the contract, every student-representative can get 100 %.

figure a

The case has two parts:

  1. 1.

    PUBLIC INFORMATION: it is available to every participant and describes the overall situation.

  2. 2.

    PRIVATE INFORMATION: it is only available to the student who plays the role of the representative of the company. It describes the company, its situation, priorities and expectations. Private information will be provided after you log into the system.

Notes

  • To succeed in this assignment, you must watch the Demo and read the Example.

  • You may use the system that is somewhat different from the one discussed in the Demo. However, all key features are the same and the interaction with the system has not changed.

  • New feature of the Imbins system: The best offer which Milika received from one supplier is now automatically displayed to all suppliers. You may use this information in your negotiation with Malk, who represents Milika.

  • In case of any difficulty, check FAQ page.

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Kersten, G.E., Wachowicz, T. & Kersten, M. Competition, Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations. Group Decis Negot 25, 693–722 (2016). https://doi.org/10.1007/s10726-016-9471-0

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