1. Online Trading and Negotiation Instructor: Jerry Gao Ph.D. San Jose State University email: jerrygao@email.sjsu.edu URL: http://www.engr.sjsu.edu/gaojerry May, 2000

2. Topic: Online Trading and Negotiation - Introduction of Trading - Types of Negotiation Models - Traditional Negotiation Versus Electronic Negotiations - Negotiation Process - Negotiation Protocols - Agent-Based Negotiation Systems - Problems and Issues Jerry Gao Ph.D.5/20000 Outline All Rights Reserved

3. Jerry Gao Ph.D.5/2000 Introduction to Trading Topic: Online Trading and Negotiation What is business trading? What is a business trading process? Business trading refers to trading activities in a business trading process. A business trading process refers to a process in which a group of trading parties to communicate and interact with one and another to bargain on a business deal by exchanging of goods and money. A business trading process can be classified into three types: - auction: - negotiation - exchange

4. Jerry Gao Ph.D.5/2000 Introduction to Online Trading Topic: Online Trading and Negotiation Auction Exchange Bargain or Negotiation Trading

5. Jerry Gao Ph.D.5/2000 Introduction to Negotiation Topic: Online Trading and Negotiation What is negotiation? - A negotiation process in which a group of agents communicate with one another to try and come to a mutually acceptable agreement on some matter. What is trading negotiation? - A trading negotiation process in which a group of trading agents communicate with one another to bargain for a business deal to reach a mutually reasonable agreement. Cardinality of the negotiation: - single-issue or multiple-issue - interactions: one-to-one, many-to-one, and many-to-many Negotiation styles: - manual and face-to-face negotiation - systematic and automatic negotiation

6. Jerry Gao Ph.D.5/2000 Basic Concepts and Terms Topic: Online Trading and Negotiation Competitive Negotiation: Competitive negotiations can be described as the decision-making process of resolving a conflict involving two or more parties over a single mutually exclusive goal. - Classified ad negotiation - Stock market negotiation - Retail auction negotiations Classified ad negotiation: Buyers and sellers are in ad hoc, bilateral, competitive negotiations with one another respectively for unique (but potentially similar) limited resources. Stock market negotiation: Within an unbiased, centralized marketplace, buyers and sellers are in multilateral, competitive negotiations with one another for limited resources. Retail auction negotiation: A number of buyers bargain with the same seller to gain the product in an auction process.

7. Jerry Gao Ph.D.5/2000 Basic Concepts and Terms Topic: Online Trading and Negotiation b b b b b S S S S S Traditional Classified AD Market b b b b b S S S S S Stock Market b b b b b S Online Retain Auction Market

8. Jerry Gao Ph.D.5/2000 Basic Concepts and Terms Topic: Online Trading and Negotiation There are several forms decision making processes for business negotiations: Cooperative negotiation: The cooperative negotiations can be described ad the decision-making process of resolving a conflict involving two or more parties over multiple interdependent, but non- mutually exclusive goals. The clear distinction between the competitive and cooperative protocols is the number of dimensions that can be negotiated across. Distributive negotiation: the decision-making process of resolving a conflict during a business deal involving two or more parties over a single mutually exclusi ve goal. Integrative negotiation: the decision-making process of resolving a conflict during a business deal involving two or more parties over multiple interdependent, but non-mutually exclusive goals.

9. Jerry Gao Ph.D.5/2000 Classifications of Trading Topic: Online Auction C2C Trading B2C Trading B2B Trading Business Customer

10. Jerry Gao Ph.D.5/2000 Classifications of Negotiations Topic: Online Trading and Negotiation Business Negotiation Business Negotiation Business Negotiation Buyer Seller Buyer Seller 1 1 1n 1 m Business Negotiation Buyer Seller mn

11. Jerry Gao Ph.D.5/2000 Types of Negotiation Models Topic: Online Auction Negotiation in electronic commerce can be defined as the process by which two or more parties multilaterally bargain resources for mutual intended gain, using the tools and techniques of electronic commerce. There are several forms of negotiations: Bidding: a simple form of negotiation, in which a buyer specifies the product or service he or she wants to acquire from several suppliers and asks for their bids. Based on the bids, the buyer selects the supplier(s) from whom to order the goods or services. Auction:another form of negotiation, in which ha fixed auction protocol is followed. Bargaining: the most complex form of negotiation, involving the issuing of proposals and counterproposals between negotiation parties until a mutual agreement or disagreement is reached.

12. Jerry Gao Ph.D.5/2000 Basics in Business Negotiation Process The heart of a business negotiation is a “negotiable deal”, which is modified by the participants of the negotiation with the aim of reaching a “final deal” or “trade”. The five key elements of the negotiation process are: A deal, which can be in various states such as negotiable, final offer from buyer or seller, or a settled trade. Participants such as buyers, sellers, and brokers. Messages sent by the participants to modify the deal, such as bids, offers, or price changes. Process flow describing how the state of the deal changes as a result of the messages sent by the participants. Messages sent to the participants as the deal changes. Topic: Online Auction

13. Jerry Gao Ph.D.5/2000 General Bilateral Negotiation Model -State Transition Diagram Topic: Online Trading and Negotiation agreed rejected timeout requested Proposed(x) Offered(x) negotiating closed agree reject timeout suggest offer propose openrequest Initial-proposeInitial-requestInitial-offer

14. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation agreed rejected withdrawn pendingvoting Multilateral encounter closed count withdrawn mentionedamend timeout call Multilateral Negotiation Model -State Transition Diagram seconded vote second mention

15. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation expired rejected waived right voting request closed fulfill promised pending timeout obligation Promissory Negotiation Model -State Transition Diagram overdue expire commit fulfilled promise waive

16. Jerry Gao Ph.D.5/2000 Expanded Bilateral Negotiation Model -State Transition Diagram Topic: Online Trading and Negotiation agreed rejected timeout requested Proposed Offered subnegotiate closed agree reject suggest request propose continue request open offer Partly rejected re-start offer pending continue propose reject-part questioned explained third-party advice requestedclosed delay timeout explain3rd question3rd question negotiable Sub-negotiable investigating questionexplain

17. Jerry Gao Ph.D.5/2000 Electronic Negotiation Approaches Topic: Online Trading and Negotiation There are three different approaches to support electronic business negotiations: Negotiation Server Agent-Based Negotiation Negotiation Network

18. Jerry Gao Ph.D.5/2000 Agent-Based Electronic Negotiations Topic: Online Trading and Negotiation What is software agent? - Software agents are software entities that have been given sufficient autonomy and intelligence to enable them to carry out specified tasks with little or no human supervision. - Software agents acting on behalf of end users could substantially reduce the manual effort currently required. - Software agents can be used to automate many of the tasks prevalent in the buying process. - In automated negotiation, computational agents find and prepare contracts on behalf of the real-word parties they represent.

19. Jerry Gao Ph.D.5/2000 Agent-Based Electronic Negotiations Topic: Online Trading and Negotiation Major benefits: Support distributed applications in open and heterogeneous environment. Major attributes of software agents: Autonomy, adaptability, and the capability to learn both from past actions and current environment, enabling them to react to evolving requirements. Limitations and issues: Security threats due to: Mobile software agents are vulnerable to malicious hosts. Difficult to deal with “evil” hosts from their abnormal behaviors during the negotiation sessions.

20. Jerry Gao Ph.D.5/2000 Agent-Based Electronic Negotiations Topic: Online Trading and Negotiation Intelligent Agent Architecture: Web Client Agent Client Internet Web Server Auctions Security Negotiations Intelligent Agents Market Server

21. Jerry Gao Ph.D.5/2000 Mobile Intelligent Agent: MIAMAP Topic: Online Trading and Negotiation (MIAMAP) Mobile Intelligent Agents: The MIAMAP (Mobile Intelligent Agents for Managing the Information Infrastructure Market Place) project attempts to show “the use of relations in the negotiation process will improve the balance between the need of the individual agents and the needs of the overall system. The architecture consists of: The marketplace and its manager: It acts as a mediator between buyers and sellers. All agents must register with the manager before they can interact with other agents. When conflicts arise in the marketplace, the manager help buyers and sellers to resolve the conflicts. The customers (both buyers and sellers) use buyer agents and seller agents. Transaction sessions supporting simple and complex multi-agent negotiations.

22. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation How Does It Work? The main components are: Active Virtual Pipe Domain (AVP) buys network resource from different connectivity providers, then provides high-level connectivity services to the virtual environment. Connectivity Provider Domain makes up the transport networks owned by different connectivity providers. Virtual Market Place Domain provides the venue that allows agents to exhibit their offerings and available resources. Virtual Enterprise Domain (VEB) includes the VE Builder (the component that handles negotiations, contracting, and advanced communication services. Agents are used to manage negotiations and contracting.) MIAMAP: Mobile Intelligent Agents

23. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation Mediation Process: MIAMAP: Mobile Intelligent Agents Conflict Detection Select case(s) Recommend to buyer Look for dependencies Negotiation successful Construct solution Seller found? Dependencies? Generate solution using case-based reasoning Solution accepted? Propose solution Rule Base Buyer’s request Seller’s model Rule base yes no

24. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation Solution generation via case-based reasoning: MIAMAP: Mobile Intelligent Agents Retrieve similar cases Select best case Evaluate proposal Reject proposal Case exhausted? Solution acceptable? Select next best case Send solution Market place indices Customer’s req. Failed cases no Construct or modify proposal yes Evaluation rule & rule base no

25. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation Benefits: Support a variety of transaction types from simple buying and selling to complex multi-agent negotiations. Handle multiple buyers and sellers at the same time. Support automated negotiation processes and transactions. Provide intelligent recommendations for clients. Provide mediation process, and generate solution via case-based reasoning Limitations: Compatibility with existing technologies Others MIAMAP: Mobile Intelligent Agents

26. Jerry Gao Ph.D.5/2000 Negotiation Server: IDEAL Topic: Online Trading and Negotiation (IDEAL)Replicable Web-Based Server: A web-based negotiation server is a proposed architecture that uses an object- oriented database instead of agent-based technology. A research project known as Ideal (Internet-based Dealmaker for e-Commerce) is currently in progress at the University of Florida, Gainesville, FL. The basic idea is to provide a server that can be replicated and installed at multiple sites to either replace existing web servers or to pair with the existing servers to provide negotiations capabilities. Web-Based GUI tools are provided to allow a user to specify requirements, constraints, negotiation strategic rules, and preference methods.quest. Both buyers and sellers use this interface to set up their environment prior to the initiation of a request. Once set up, the server acts on behalf of the client in all negotiations.

27. Jerry Gao Ph.D.5/2000 Negotiation Server: IDEAL Topic: Online Trading and Negotiation Major Benefits: Security, flexibility, usability, and consistency. Support multi-lateral bargaining by providing both proposals and counter- proposals. Use an active object-oriented database to manage the information, including data, constraint specifications, and strategic rules. Flexible to change strategic rules using a rule specification language. Limitations: High network traffic. Need to replace existing web servers, or to pair negotiation servers with web servers. All negotiation transactions are conducted over the Internet. Latency is a potential issue for time-critical applications. Lack of notification mechanism.

28. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation How Does It Work? Negotiation servers provide the following services: A registration service to allow a buyer to specify the requirements and constraints of the goods he wants to acquire. This service allows a user to specify the information and constraints related to the goods and services. A negotiation proposal processing service to evaluate proposals and generate counter-proposals until either an agreement or disagreement is reached. An event and rule management service to detect events, manage events, and trigger rules relevant to posted events. A rule specification language is provided to allow users to change rules dynamically. A cost-benefit analysis service to allow a client to perform quantitative analysis on alternative proposals. Negotiation Server: IDEAL

29. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation Negotiation Server: IDEAL Web Server Negotiation Server A Buyer Client Web Server Negotiation Server B Seller Client Inventory DB Expert User Expert User Internet Proposals/counter proposals

30. Jerry Gao Ph.D.5/2000 Topic: Online Trading and Negotiation Negotiation Server: IDEAL - Proposal Process Flow incoming proposalRegistered constraints Attribute constraint verification Inter attribute constraint verification Generate combinations evaluate Report conflicts relax Final agreement Counter proposal Constraint relaxation Cost benefit analysis Constraints satisfiedConstraint violations Strategic rules