Negotiating over bundles and prices using aggregate knowledge

Abstract

Combining two or more items and selling them as one good, a practice called bundling, can be a very effective strategy for reducing the costs of producing, marketing, and selling goods. In this paper, we consider a form of multi-issue negotiation where a shop negotiates both the contents and the price of bundles of goods with his customers. We present some key insights about, as well as a technique for, locating mutually beneficial alternatives to the bundle currently under negotiation. When the current negotiation's progress slows down, the shop may suggest the most promising of those alternatives and, depending on the customer's response, continue negotiating about the alternative bundle, or propose another alternative. Extensive computer simulations show that our approach increases the speed with which deals are reached, as well as the number and quality of the deals reached, as compared to a benchmark, and that these results are robust to variations in the negotiation strategies employed by the customers. © Springer-Verlag 2004.