Individualized Quality-Differentiated Services: A Market Model and Comparison of Negotiation Mechanisms

Individualized services are common in distributed computing systems: Consumers demand custom solutions and service providers tailor their offering. In negotiating a service contract, providers and consumers frequently fail in identifying the optimal combination of non-functional properties and price. A key reason is that negotiators simultaneously try to create and claim value leading to strategic bidding and inefficient outcomes. We present a theoretical comparison of three negotiation mechanisms in the scenario of self-interested, rational agents bilaterally negotiating over service quality and price. Two mechanisms are stylized representations of mechanisms commonly used in theory and practice, one is newly introduced. The mechanisms are characterized in terms of truthfulness of agents, efficiency of outcomes, and distribution of welfare. The analysis is an extension to the field of bilateral multi-attribute negotiations, relevant for researchers and practitioners designing markets for individualized IT services and for human and computer agents acting in such markets.