Utility theory and decision analysis have a long tradition in microeconomics, operations research as well as in business administration. The following sections will introduce the basic concepts of both disciplines. Understanding these is important to the conceptual design ofmulti-attribute auctions and to the practical implementation of these mechanisms.

Basic Ideas of Utility Theory

The theory of utility dates back to over a century ago. “Utility” and “value” are synonyms for many researchers, therefore, the term “utility” is used throughout the text. Microeconomists were the first to analyze consumers' preferences and utilities. This research has a long, complicated and controversial history and is as old as economics itself. At the present time economists still do not agree on the real meaning of utility and the way in which it should be defined (Metha, 1998).

Existence of a Utility Function

In the nineteenth century economists saw “utility” as an indicator of a person's overall well-being or happiness. The first explicit and systematic use of the concept of utility to explain value of commodities can be found in Jevons' classical Theory of Political Economy (1871). Jevons did not, however, distinguish between preference and utility.

The experimental analysis of multi-attribute auctions in chapter 6 provides a good understanding of the relevant issues and causalities. This chapter will focus more on the theoretical underpinnings of multi-attribute auctions. So far, game-theoretical models have focused on cases in which agents' private information is one-dimensional. The consideration of multidimensional types poses substantial technical difficulties and results of any generality seem restricted to a few papers. The complications are not merely technical: many economic insights in single-dimensional theory do not necessarily extend in any natural fashion.

Section 7.1 will provide a summary of spare game-theoretical literature in this field. Section 7.2 will compare the results of conventional and multiattribute auctions using a simulation model. This section will also consider the particularities of OTC trading of financial derivatives, which have been the focus in chapter 6. Up until this stage quantity was assumed to be fixed in advance and all items to be purchased from a single bidder. Section 7.3 will provide a classification framework for multi-attribute auctions where quantity is an issue, and introduce a model which shows the impact of economies of scale on the outcome of multi-attribute auctions.

Subsection 5.2.2 introduced negotiation support systems, which are used to support bilateral negotiations on multiple attributes. This section introduces multi-attribute auctions, a generalization of reverse auctions. Multiattribute (reverse) auctions combine the advantages of auctions, such as high efficiency and speed of convergence, and permit negotiation on multiple attributes with multiple suppliers in a procurement situation.

Multi-Attribute Procurement Negotiations

Several authors have analyzed tenders and reverse auctions (Dasgupta and Spulber, 1989; Laffont and Tirole, 1993). Previous game-theoretical models of reverse auctions have generally assumed that the qualitative attributes are fixed prior to competitive source selection – hence, bidding competition is restricted to the price dimension. While such an approach may be appropriate for auctions of homogeneous goods, this assumption does not necessarily apply to most procurement situations.

In reverse auctions, bidders often provide very different kinds of goods and services in their bids. An example is the procurement of large food retailers (Bichler, Kaukal and Segev, 1999). The suppliers in the market consist of large companies as well as a large number of small and mediumsized enterprises (SMEs) such as bakeries and breweries. The buyers are a small number of large food retailers who aggregate the demand and distribute it to the consumer.

Markets evolve, but they are also designed by entrepreneurs, economists, lawyers and engineers. Market design creates a meeting place for buyers and sellers and a format for transactions. Recently, economists and game theorists have begun to take a direct role and designed different kinds of market mechanisms.

An area in which market design is well developed is in the study of auction-based protocols. Although this is criticized by some authors (Kersten and Noronha, 1999a), auctions will be considered as a special type of negotiation. Leading economists such as Preston McAfee, John McMillan and Robert Wilson, among others, have successfully deployed game-theoretical analysis in order to design the bidding process in the case of the US Federal Communication Commission's (FCC) spectrum auctions as well as the design of energy markets. However, auction design is also an area in which there is a need to supplement the standard microeconomic theory.

Game theory is an important methodology, but it is not by any means the only technique necessary for successful market design. Market design practice is in its early stages and comprises methodologies such as equilibrium analysis, game theory, mechanism design theory, experimental economics, and computation. These techniques will be described in subsequent sections.

Most companies are faced with the problem of pricing their products. This problem has been a focal research question of microeconomics and marketing. Microeconomists have developed a sound framework of markets which is a good starting point for an analysis of electronic markets. This section will provide a brief overview of microeconomic theory and the morphology used to describe different market structures. This framework provides a useful terminology for thinking and communicating about markets, and describes the basic ideas of price-setting.

Section 3.1 will focus on a number of market structures which are well analyzed in microeconomic theory. Of course, this can only be a rough description of the microeconomic theory, and by no means complete. (For a more rigorous discussion see Varian, 1992, 1996c; Mans field, 1996; Browning and Zupan, 1999.) Section 3.2 will describe differential pricing, which is of particular importance to electronic commerce.

Market Structures

An economic environment consists of individual economic agents, together with an institution throughwhich the agents interact (Browning and Zupan, 1999). The agents may be buyers and sellers, and the institution may be a particular type of market.

Negotiation is a crucial part of commercial activities in physical as well as in electronic markets (see section 1.3). Current human-based negotiation is relatively slow, does not always uncover the best solution, and is, furthermore, constrained by issues of culture, ego, and pride (Beam and Segev, 1997). Experiments and field studies demonstrate that even in simple negotiations people often reach suboptimal agreements, ther eby “leaving money on the table” (Camerer, 1990). The end result is that the negotiators are often not able to reach agreements that would make each party better off.

The fact that negotiators fail to find better agreements highlights that negotiation is a search process. What makes negotiation different from the usual optimization search is that each side has private information, but neither typically knows the other's utility function. Furthermore, both sides often have an incentive to misrepresent their preferences (Oliver, 1997). Finding an optimal agreement in this environment is extremely challenging. Both sides are in competition but must jointly search for possible agreements. Although researchers in economics, game theory and behavioral sciences have investigated negotiation processes for a long time, a solid and comprehensive theoretical framework is still lacking. A basic principle of microeconomics and negotiation sciences is that there is not a single, “best” negotiation protocol for all possible negotiation situations.

Ethnography, workplace studies and design: the problem of communication

Since the late 1980s, and much to the surprise of many of its practitioners, ethnography has risen to a position of some prominence within CSCW research (Bentley et al., 1992; Hughes et al., 1994). This rise has not, of course, gone unchallenged; even from relatively sympathetic critics serious questions have been raised, and quite rightly, about the value of the approach in actually informing system design (see e.g. Plowman et al., 1995). Although this criticism is well taken, it does point to a problem recognised from the outset, namely, how are the results of ethnographic field studies to be conveyed to designers? In fact, there are a host of problems involving, for example, the scope of the design, the size of the design team, the stage of the design and more (see Hughes et al., 1994). Such communication problems have been at the heart of system design for some years even before ethnography and workplace studies came on the scene, and in this connection the ‘story’ related by Cooper et al. (1995) – though pertaining to designers and users – can be adapted to portray something of the state of affairs between fieldworkers and designers:

Introduction

The International Monetary Fund's main building is situated a short distance from the White House in Washington, D.C. From the outside the building is nondescript, and indicates nothing of the institution's importance in world affairs nor about the activities that are undertaken within. From the inside, however, the building offers a much more spectacular and informative view. The building has an enormous atrium ensuring that nearly all of its offices have a window. Most, of course, face outward, towards the World Bank across the way on 19th Street, for example; but the remainder face in and the occupants can gaze across the atrium at their colleagues on the other side of the building. For those who do not have an office – an ethnographer for example – the landings by the lifts offer vantage points on to the atrium. Here the ethnographer can view the institution's staff in action: as they sit around conference tables in meetings, move from one office to the next, or crouch over their workstations keying in data. Indeed, during my own ethnographic vagabondage in Washington, these landings provided me with havens in which I could wait in between interviews or could jot down notes from a meeting I had just finished. Sometimes I would simply rest here and dreamily watch the theatre of bureaucratic life before me.

In this chapter I want to explain what some of the activities I observed involved. I want, if you like, to give those activities the meaning that they so obviously lacked from the windows on to the atrium. Such a goal is of course the fundamental task of ethnography.

Introduction

The emergence of ‘information’ as the dominant commodity of the late twentieth century has brought with it an accompanying preoccupation with ‘knowledge work’ as the defining form of labour. At least implicitly, knowledge work stands always in contrast with certain other, persistent forms of work that are taken not to involve the active production and use of information. These latter may be either the residue of so-called ‘manual’ labour, or mediating processes in the operation of information technologies that remain to be automated, still requiring human interventions but otherwise defined as routine (data input being the prototypical case).

A starting concern of this chapter is how, in reproducing oppositions of mental versus manual, the discourse of knowledge versus routine work sustains old assumptions as a basis for conceptualising new relations of work and technology. Developing an alternative to these traditional conceptualisations requires that we re-examine the basic premises about knowledge on which they rest. One by now common-sense premise is that professionalised forms of labour have grown up around particular bodies of specialist knowledge, held, maintained and developed by profession members.

In the past few years we have witnessed extraordinary pronouncements concerning the ways in which new technologies will transform the ways we work together. In both the popular press and in academic debate, an interest principally focused on extensions to existing computer networks, new forms of telecommunications and the potential of faster and cheaper systems, all have suggested that we are soon to be faced with a very different workplace. Workers will be more mobile when all the technological support they need can be provided wherever they are located and it may even be no longer necessary for individuals to travel to a particular site when they can work from home. The actual ‘organisation’ for which they work will become fragmented, geographically dispersed and possibly ‘virtual’, being transformed into a business with no physical location and little organisational structure.

Such pronouncements may seem curiously reminiscent to those familiar with the predictions associated with the microchip in the 1970s, or the motor car in the 1940s, or even earlier with the potential afforded in the nineteenth century by the telegraph, telephone and electricity (cf. Evans, 1979; Hall, 1988; Marvin, 1988). It is certainly the case that in the last few years the personal computer (PC) and electronic mail (email) have greatly transformed the way that work is accomplished in a large number of organisations. However, despite the grand intentions of proponents of novel technologies it is frequently the case that their impact is more modest. Indeed, it is not unusual for new systems once they have been introduced to be ignored, used to only a small degree of their capabilities or worse to be the cause of some great disaster.

Introduction

Since the late 1980s, one can discern a ‘turn to the social’ in the field of computing. The increased attention being paid to ethnographic studies of work by various subgroups of the computing profession – requirements engineers, system designers – is but the most visible manifestation of this interest. While there has always been a small number of people involved in studying the social dimensions of computing, from the birth of the computing field (e.g. Kling, 1980), this more recent phenomenon has been led by a rather different set of concerns, which, although quite heterogeneous in their origins, have all contributed to a shaping of the discourse on the social embeddedness of technology. Human–machine relationships more generally have become problematised in new ways, moving beyond human factors and cognitivist human–computer interaction frames to include participatory approaches to system design, and ethnomethodological and actornetwork accounts of heterogeneous human–machine complexes. The outcome of this reconceptualisation of the field is still unclear, yet at the very least it has enlarged the arena for discourse on the nature of software development, and has allowed the participation of a number of actors from disciplinary fields previously not included in the discussion. One result has been a questioning of the assumptions behind standard development processes, such as the prototypical waterfall model of software development, and an increased emphasis on such areas traditionally known as requirements analysis and user needs analysis.

Introduction

I am concerned with design, particularly with the issue of how to design systems that mesh gracefully with the practices and activities of particular workplaces. This concern gives rise to a number of questions: how do designers come to understand a new workplace? How do they get a sense of the sorts of activities that occur within it, and with which their design must coexist? How do designers avoid or minimise disruptions caused by the inevitable changes a new system will introduce? How do they figure out how to design things that are useful, and not just usable?

Workplace research is a vital part of any answer to these questions. However, from my vantage point as a practitioner of design, it seems very unlikely that a thorough research phase will become a standard part of design practice. Systems design and implementation typically takes place under considerable limitations of time and resources; it seems unlikely that this will change. To me, this suggests a clear conclusion: we need ways of allowing the results of workplace studies to be reused in new and different situations.

But in what form should the results of workplace studies be presented? This is a difficult problem because most designers are not versed in the disciplines and assumptions that underlie workplace research; workplace studies are not accessible to those who need them the most. The problem is compounded by the fact that those involved in systems design lack any core discipline.