MAXIMIZING WELFARE THROUGH COOPERATIVE NEGOTIATION IN A MULTI-AGENT INTERNET ECONOMY

Abstract

E-commerce over the Internet has become an attractive means of conducting business in today's world. However, the principles of classical economics demand a fresh insight before they can be adapted to the market structure presented by the Internet. Here, we investigate markets for goods that are characterized by an experience-limited supply curve. We propose an algorithm that maximizes the welfare in the e-market by maximizing the combined profit of the buyers and sellers. For this, the buyers and sellers must reveal their value and cost curves to a trusted intermediary who can determine the transaction that maximizes their joint welfare. We show that accurate revelation of hidden profits offers better incentives, both to the buyers and the sellers, than inaccurate or incomplete revelation.