Application of the Representational Framework: The Case of e-Negotiation Systems

Negotiations

Negotiations are an integral part of normal business and personal activities. People rarely realize how often they engage in negotiations in their daily lives (Raiffa, 1982). Engaging in a negotiation the parties attempt to find an agreement that would be suitable for them. In retailing the most common sort of exchange mechanism between a company and its customers is a catalog model, where a price for a given product or service is fixed and non-negotiable. Companies attempt to find such price levels, which would maximize their profits, subject to a number of other factors, such as mission, profile, reputation and the like. This is “take it or leave it” philosophy. However, even in the mass-volume catalog-oriented retailing there are elements of negotiations. Economically speaking, negotiation is a too attractive and flexible mechanism to avoid completely. Businesses realize the value of this flexibility for maximizing their profits and market share.

During the course of negotiations one party makes an offer, and the other one either accepts, or rejects it. The other party may also make a counter-offer. Thus, negotiation is about exchange of offers which leads to an agreement or termination without an agreement. In a sense, many businesses do engage in negotiations with their customers, but in an implicit way. This is done through realizing that customers may not react to basic offers and anticipating the offers to which customers may react. For example, while shopping at amazon.com a shopper may be considering buying a given item. The site then offers this item in combination with some other, similar item at a reduced total price. The site sort of “negotiates” with the customer, while the latter does not necessarily realize it. It is not a true exchange of offers, but it is a hidden one. First, customer sees the item of interest. The site at this point has no clue as for whether the customer intends or does not intend to purchase the item. A customer may or may not be interested in the item. In any case, if the customer does not proceed directly to check out, he or she notices the new offer, which might be of interest. A customer may so easily leave the site. This is why the latter makes a number of offers in parallel, rather than interactively. Many businesses, ranging from established online stores to fast-food restaurants make such offers including “value packs” and limited-time discounts.

In any exchange the issue is in determining the value of goods or services being exchanged. In retailing, the value is easier to estimate as many exchange instances occur on a daily basis. In some other contexts, e.g. in real estate the value of a given property is influenced by many factors. A given property is not traded multiple times in a short time interval, which makes its value less obvious. As a rough approximation, one could check the prices of properties in a given neighborhood. However, there is typically a multitude of other details. For example, selling it quickly could be one of the motivational factors of the owner. The value of an exchange has to be discovered through the negotiation process.

Somewhat arbitrarily in the above discussion a business context of exchange has been adopted. While negotiations between business partners and those involving decisions of a strategic kind, e.g. mergers between companies present interesting cases for analysis, the objective was to argue, that even in routine exchanges the elements of negotiations are present. Negotiations are omnipresent. Surely, negotiations in general are not limited to purely economic transactions. They are an important mechanism in social, legal, and political domains as well. Formally, negotiation can be defined as “a process of social interaction and communication about distribution and redistribution of power, resources, and commitments” (Kersten, 2003). Usually, when speaking about negotiations, one thinks of the two parties involved in the offer – counter-offer sequences. However, in general negotiations may involve several parties. For example, negotiations over the legal status of the Caspian Sea involved representatives of five countries (four of which used to be parts of Soviet Union): Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan. Two-party negotiations are referred to as “bilateral.” Those involving multiple parties are called “multi-lateral.” It is also common to have a scenario, where one party negotiates with multiple other parties, but these negotiations are independent from each other. In this case we have multi-bilateral negotiations.