Negotiating McMillan Chapter 6

1
NegotiatingMcMillan Chapter 6

• Using Information Strategically

2
Introduction

• Negotiation usually take place in uncertain
  environments
• Who are you negotiating with?
• Asymmetric information implies that
• Some negotiations might breakdown
• There could be a source of bargaining power
• It requires more creativity on the part of the
  negotiators
• It might create delaysthat are optimal!!!

3
Informational disadvantage I

• Your opponent holds some information that is
  useful for you
• Example you are the seller facing fanatics and
  normal customers
• You want to screen your opponents
• You offer a smaller share today than tomorrow
• Justification for sales
• It requires that the those that want to deal
  early are those that hold the information you
  desire
• Normal customers are more impatient fanatics
• Those dealing today are more impatient than those
  dealing tomorrow

4
Informational disadvantage II

• Sometimes commitment is preferred than trying to
  figure out who they are
• Example if there are a lot of fanatics you are
  willing to pay a seller to credibly fix the price
• In Bargaining you are stubborn on the offered
  share
• This depends on
• How much you value the present
• How much your opponent values the present
• How willing are you to reach a situation where no
  agreement is possible
• Being stubborn sometimes is rational!!!
• Not dealing sometimes is rational!!!

5
Informational advantage I (?)

• You hold some information that is useful to your
  opponent
• Example you are the fanatic and you want to tell
  that to the seller
• You want to signal who you are
• You take an action that is costly for you and is
  more costly for you if you are lying
• Example is more costly for normal customers to
  offer a high price than it is for fanatics
• Put your money where your mouth is
• For you to convey information is costly private
  information sometimes is a curse
• When is this the case?

6
Informational advantage II (?)

• If you are on the side of the negotiators that
  hold private information
• Example you are worker
• There are many types of people on your side
• Example different productivity
• You can use signal to say who you are
• Example getting a degree, work for relatively
  small pay but increasing over time (corporate
  career), work for free sometimes (summer jobs,
  trainees).
• Sending signals is costly but allows you to
  separate yourself from other people that might
  reduce your payoff even more.
• Private information is a blessing (you separate)
  and a curse (you need to separate).

7
Signals

• What is a signal?
• It can be anything that
• It is costly.
• It is more costly for those that do not want to
  separate themselves.
• It is known that it works as a signal.
• There is, in a sense, a notion of
  irrationality anything is possible.
• The irrationality comes from trying to match
  economic use of signals with the common sense of
  signals.
• Example quiche and beer.

8
Signals It is known that it works as a signal

• These raise the question
• How do we know this?
• Answer beliefs!!!!
• An awful equilibrium
• I believe that all my opponents are tough.
• They will never offer me anything in any
  negotiation.
• I get into a negotiation and they offer me
  nothing.
• Seethey are all tough!!!!.
• If your beliefs are known then you are driving
  that result
• Conclusion show what you think when it works in
  your favor.

9
Case cheapexpensive

• Firms usually give things away in order to
  convince people that the quality is good.
• This is a costly signaltherefore they must be
  good.
• If things go bad then it must be a mistake
  becauseonly good quality goods are given for
  free.
• PROBLEM also low quality goods are cheap.
• This is not a good signal. Not even high prices
  are a good signal.
• Example market for clothes.
• To establish quality the only signal is that
  youve been in the market for a long time
  reputation.
• Signaling when there are multiple rounds can be
  difficult because of those that enter for a few
  rounds.

10
NegotiatingMcMillan Chapter 7

• International Trade Agreements

11
The Theory (?)

• Free trade is good
• Market forces drive investment and consumption
• Efficiency is achieved
• Free trade is bad
• Market forces drive investment and consumption
• Equality is not achieved
• Free trade causes some problems in the short run
• Adjustments to new competition
• Unemployment in some sectors and shortages in
  some others
• USA a lot of social scientists and very few
  mathematicians and engineerings

12
The Fact

• The World Trade Organization has succeeded in
  reducing tariffs
• Other barriers still remain
• Government regulations
• Subsidies
• Culture (?)
• Many reasons
• Political games inside the countries
• Strategic use to develop new industries
• Is there some rationale on barriers to remain
  active?

13
The WTO game

• Many players
• What I do affect many people.
• I am affected sometimes even though I am not in
  the negotiation.
• Prisoners dilemma
• If everybody decides to open their economies
• It is a good idea for me to close it a little bit
• No law except
• Repeated interactions
• Except for very few cases all the countries
  remain on earth.

14
Repeated interactions

• Stick and carrots
• Sticks increasing my barriers
• Carrots lowering my barriers
• New law
• If we all behave we try to give everybody a
  carrot
• If somebody misbehave we all give him sticks.
• The very same organizations requires the use of
  barriers
• How it works?
• As long as it is clear what rewards a carrot and
  a stick we all try to follow the carrot path

15
Problem

• It is not always clear to figure out when
  somebody has raise his barriers or not
• Is buy American a barrier or not?
• Is dependence on foreign oil a barrier or not?
• Are the Green Laws a barrier or not?
• There are many possible outcomes due to many
  countries and many directions of bargaining
• There is incomplete information
• Breakdown and delayed

16
How it works I

• Agreement on reciprocity (focal point?)
• I have to concede on a particular amount of money
  affected
• The change in the tariff multiplied by the
  imports affected
• WHAT?
• It does not make sense in economic terms
• It has to measure the future impact and the past
  impact
• It might not be even relevant
• It is useful as a coordination device
• Remember the 50-50 split

17
How it (does not) works II

• Non tariffs barriers lack this coordination
  device
• Negotiations are wide open and all the incomplete
  information plays an important role.
• It increases incentives for countries to develop
  techniques to increase their bargaining position
• Increasing the opponent cost of not conceding by
  creating fast retaliation
• Creating internal commitment to retaliate and
  internal commitments to increase the outside
  option (use of non trade barriers).
• Important agreements are only sustained if there
  is a threat fro breaking them
• Sticks need to survive if we rely on mutual
  agreements without international courts.