Negotiations Midterm Review

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distributive negotiation

distributive negotiation

A fixed-pie negotiation in which there is only a single issue, conflicting interests, and it primarily about claiming value

BATNA

Best alternative to a negotiated agreement

reservation price

the bottom line that you are willing to take as a seller and the highest you are willing to pay as a buyer

(BATNA +/- opportunity costs, preferences, ego)

Bargaining zone (ZOPA)

The range of settlement opportunity between each party's reservation price

(Buyer's - seller's reservation price)

Aspiration/target price

the best possible agreement for your party (high, but realistic)

Distributive Tactics

1. make first offer

2. Leave room for concessions

3. Bi-lateral concessions

4. Be objective

5. make smaller concessions as you approach your goal

Integrative Bargaining

Focused on expanding the pie, interest-based, where both parties benefit

• separate people from problem

Position-based negotiation

parties are not focused on underlying concerns or interests

• only concerned about their own stance, demands, preferred solution, or claim

Information exchange

Ask questions, sharing, and listening

• #1 behavioral predictor of reaching integrative agreements

Fair procedure

1. indicate concern in satisfying their interests

2. Let them take the lead sometimes

3. collaborate in drafting agreements

4. show respect

Advantages of integrative bargaining

1. avoids impasses

2. preserves and strengthens relationships

3. improves outcomes (expands pie)

4. more stable agreements

5. improves implementation

Distributive v. Integrative

Distributive bargaining involvements a fixed-pie perception in which value is strictly claimed. This means that one side's gain is the others' loss. Distributive bargaining is inherently competitive as it focuses on individual gains, is position-based, and prioritizes single-issues in the short-term relationship.

On the other hand, integrative bargaining has a focus on value creation, or expanding the pie. Integrative bargaining focuses on underlying interests and concerns as opposed to positions and therefore can be seen as collaborative. This collaborative nature encourages joint-gains and works on multiple issues to ensure a long-term relationship.

Negotiator's Dilemma

A situation in which the tactics of self-gain restrain moves to create greater mutual gain

How do you avoid the negotiator's dilemma?

1. prepare for distributive AND integrative opportunities

2. be "cautiously cooperative" by balancing cooperation with competition

3. build trust through reciprocal information exchange

4. utilize multiple equivalent offers

How do you deal with hardball tactics?

1. don't immediately retaliate

2. use objective standards

3. listen and demonstrate respect

4. indicate willingness to leave

What are the twin goals of negotiation?

1. get the best deal possible

2. maintain or strengthen relationship

unmitigated communion

focusing on others and not thinking about oneself

How can you build liking and rapport?

1. informal conversation/schmoozing

2. talk about non-business topics

3. study results

4. ask questions and follow ups

5. highlight similarities

6. show positive emotions

7. mimicry

How to show respect?

1. ask for opinions

2. listen carefully

3. show concern for their needs and perspectives

4. observe norms

What is calculus-based/deterrence-based trust?

People having trust in others because the cost of being untrustworthy outweighs the benefits of breaking trust

What is identification-based trust?

trust grounded in deep knowledge of the partner's desires and intentionsthe

What is knowledge-based trust?

ability to predict the behavior of the trustee based on prior performance

How can you build trust?

• reciprocity

• reputation

• similarity

• MOOD

• Social Networks

• Common Goal

• Focus on future

What are some advantages of trust?

• Facilitates communication and information sharing

• Eases Anxiety

• cues cooperative behavior

• decisions feel less risky

Closeness Communication Bias

we don't listen to our close friends because we already expect to know what they will say

Pareto Efficient Frontier

• no better possible joint agreement without making one party worse off than the other

What are some good strategies for reaching pareto efficient agreements?

• never assume fixed pie

• build trust and rapport

• ask diagnostic questions and listen

• give away some info

• Look for compatible issues to add to the table

Logrolling

Trading off issues of differing priority -making concessions on lower priority issues in exchange for higher priority issue concessions

Matching Right

a right of first refusal

Multiple equivalent offers

two or more package offers of equivalent value (near aspiration level)

What are some of the benefits of multiple equivalent offers?

-signals cooperation and flexibility

• collects and signals information about priorities

• allows you to be persistent

post-settlement agreements

Going back to the negotiation table after a deal is already set to see if there is any more value than can be created

contingency contracts

• an agreement to change the negotiated outcome in a specific way on the basis of the occurrence of a future event

Benefits of contingency contracts

• avoids impasses

• reduce risk through risk sharing

• increase incentive for performance

• manage decision-making biases

scoring system

• a way to quantify all possible outcomes in terms of utility

• internalize what you care about

benefits of scoring systems

• more easily and accurately compare offers and package deals

agents

using others to negotiate for you

benefits of agents

• expertise/network connections

• signal competence

• save time and effort

• avoid interpersonal issues

• objectivity (avoids self-promotion dilemma)

Major Negotiation traps

1. Leaving money on the table

2. Winners curse (satisficing): settling for too little bc you're happy

3. Hubris: walking away even if terms are better than you can get anywhere else

4. Agreement bias: Settling for terms worse than the current situation

Why do impasses occur?

1. no agreement is possible

2. seeking to win rather than focusing on outcomes (escalation of commitment)

3. fixed pie perceptions

4. positive illusions and unrealistic aspirations

5. Negative perceptions of the other party