Concession-making in multi-attribute auctions and multi-bilateral negotiations: Theory and experiments

Concession-making behavior is an essential process in negotiations and auctions and has critical impact on the outcomes of an exchange. In auctions, concessions relate to deciding on the next bid by bid-makers, while in negotiations they involve proposing next offers by both parties. The purpose of this paper is twofold: (1) present a theory of concessions which could be applied to both auctions and negotiations and (2) provide experimental verification of the theory. The concession model identifies nine types of concessions derived from the preference structures. The occurrence of all nine types has been confirmed in experiments. The model also identifies two concession categories which are associated with the process transparency. The theory-based assessment of the concession-making in multi-attribute auctions and multi-issue multi-bilateral negotiations allows for their comparison. To this end, two systems implemented on the Invite e-negotiation platform are used. One of the major findings suggests that auctions induce concession-making that is more likely to lead to Pareto-optimal agreements. This study also suggests that greater transparency in negotiations is likely to lead to better agreements.