Distributed Bargaining

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Distributed Bargaining
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What is Distributive Bargaining?

• Distributive bargaining - also called
  competitive, or win-lose, bargaining.
• The goals of one party are usually in fundamental
  and direct conflict with the goals of the other
  party.

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Characteristics of Distributive Bargaining

• Resources are fixed and limited
• Each party wants to maximize his or her share of
  the resources.
• Each party will use a set of strategies to
  maximize the share of the outcomes to be
  obtained.
• Most of these strategies and tactics guard
  information distribution carefully - information
  is given to the other party only when it provides
  a strategic advantage.
• However, it is highly desirable to get
  information from the other party in order to
  improve negotiation power.
• Distributive bargaining is basically a com
  petition over who is going to get the most of a
  limited resource (often money).
• What are some typical distributive bargaining
  situations?

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Why Study Distributive Bargaining?

• Some interdependent situations that negotiators
  face are distributive in nature, and negotiators
  need to understand these situations to do well in
  them.
• Many people use distributive bargaining
  strategies and tactics almost exclusively, thus
  it is necessary to understand how these
  strategies and tactics work if one wishes to
  counter their effects.

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Pros and Cons of Distributive Bargaining

• Con - they are counterproductive and costly to
  use.
• Con - Cause negotiators to focus so much on the
  differences between negotiating parties that they
  ignore what the parties have in common.
• Pro - when a negotiator wants to maximize the
  value obtained in a single deal
• Pro - when the relationship with the other party
  is not important.

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Distributive Bargaining Example House Purchase

• Monica has a house to sell. Her initial asking
  price is 145,000 which 10,000 above what
  Larry hoped to pay (135,000 Larrys target
  price), but 5,000 below the most he would be
  willing to pay (150,000 Larrys resistance
  point).
• The more Larry pays for the house, the less money
  he will have to pay for alterations such as
  draperies, furniture and hiring a moving company.
  
• Monica already has nice drapes and furniture in
  the house.

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How to make an Initial Offer

• Before making an initial offer, what does Larry
  need to understand about negotiation?
• Each person is expected to give and take
• What if Larrys initial offer was 135,000?
• His first concession would move away from his
  target price and closer to his resistance point
• Instead, Larry should start lower than his target
  price to create room for concessions.
• What if Larrys initial offer is too low?
• Monica will think that Larry is not serious, or
  unreasonable

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Resistance Point

• The resistance point, the point beyond which a
  person will not go or break off negotiations, is
  not known to the other party and should not be
  revealed.
• What is Monicas resistance point (lowest price
  she is willing to sell)?
• Since the house is listed for 145,00, Larry
  knows that she is willing to take less. Is it
  140,000, 135,000?
• Larry knows that his resistance point is
  150,000, but Monica does not know that so she
  must determine how high he is willing to go

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Bargaining Range

• Bargaining Range - The spread between the
  resistance points, or settlement range, or Zone
  of potential agreement.
• In this area the actual bargaining takes place,
  for anything outside these points will be
  summarily rejected by one of the negotiators.
• When the buyer's resistance point is above the
  seller's-he is minimally willing to pay more than
  she is minimally willing to sell for, as is true
  in the house example-there is a positive
  bargaining range.
• When the reverse is true-the seller's resistance
  point is above the buyer's, and the buyer won't
  pay more than the seller will minimally
  accept-there is a negative bargaining range.
• If Monica would minimally accept 145,000, then a
  negative bargaining range exists thus
  negotiations are likely to end quickly!

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Buyers View of the House Negotiation
Monicas Asking Price
Larrys Target Point
Larrys Resistance Point
150,000
140,000
145,000
130,000
135,000
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Buyers View of the House Negotiation
Monicas Inferred Resistance Point
Monicas Inferred Target
Larrys Initial Offer
Larrys Target Point
Monicas Asking Price
Larrys Resistance Point
145,000
135,000
140,000
130,000
133,000
150,000
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Buyers View of the House Negotiation
Monicas Inferred Resistance Point
Monicas Alternative Buyer
Larrys Initial Offer
Monicas Inferred Target
Larrys Resistance Point
Larrys Alternative House
Larrys Target Point
Monicas Asking Price
142,000
140,000
145,000
134,000
135,000
150,000
130,000
133,000
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The Role of Alternatives To A Negotiated Agreement

• Fourth factor alternative outcomes
• The role played by an alternative outcome that
  can be obtained by completing a different deal
  with a different party.
• Alternatives are important because they give the
  negotiator power to walk away from any
  negotiation when the emerging deal is not very
  good.
• In negotiations where we have many attractive
  alternatives, we can set our goals higher and
  make fewer concessions.
• In negotiations where we have no attractive
  alternative, such as when dealing with a
  sole-source supplier, we have much less
  bargaining power.
• Good distributive bargainers identify their
  realistic alternatives before beginning
  negotiations with the other party so that they
  can properly gauge how firm to be in the
  negotiations.

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The Role of Alternatives To A Negotiated Agreement

• For our house buying example
• Larry can find other alternative houses to buy
  (if he finds another house and negotiates the
  best price he can, then that house represents his
  alternative)
• Monica can find another buyer (if she waits long
  enough or drops the prices enough)
• An alternative can be identical to the resistance
  point but there are often other factors to
  consider (location of the house, neighborhood,
  etc)

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Settlement Point

• The objective of both parties is to obtain as
  much of the bargaining range as possible-that is,
  to get the settlement as close to the other
  party's resistance point as possible.
• Both parties in distributive bargaining know that
  they might have to settle for less than what they
  would prefer, but they hope that the settlement
  point will be better than their own resistance
  point.
• In order for agreement to occur, both parties
  must believe that the settlement point, although
  perhaps less desirable than they would prefer, is
  still the best that they can get.

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Settlement Point

• It is important that each party believe the
  settlement point is the best she can get, and
  that both reach agreement and ensure support for
  the agreement after the negotiations.
• Parties who do not think they got the best
  agreement possible, or who believe that they
  lost, frequently try to get out of the agreement
  later or find other ways to recoup their losses.

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Settlement Point

• If Larry thinks he got the short end of the deal,
  he can make life miserable and expensive for
  Monica by making extraneous claims later
  on-claiming "hidden damages" to the house, or
  that fixtures that were supposed to come with the
  house were defective, and so on.
• Another factor that will affect satisfaction with
  the settlement point is whether the parties can
  get even in the future or whether they will ever
  see one another again.
• If Monica was moving out of the region, then
  Larry should ensure that he evaluates the current
  deal very carefully because he may be unable to
  contact her later for any adjustments.

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Bargaining Mix

• In almost all negotiations, agreement is
  necessary on several issues, such as
• Price
• Closing date
• Renovations
• Price of items that could remain in the house
• The package of issues for negotiation is the
  bargaining mix.
• Each item in the bargaining mix can have its own
  starting, target and resistance points.

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Fundamental Strategies

• The prime objective in distributive bargaining is
  to maximize the value of this single deal. In our
  example, the buyer has four fundamental
  strategies available
•  1. To push for a settlement close to the
  seller's (as yet unknown) resistance point,
  thereby yielding for the buyer the largest part
  of the settlement range. The buyer may attempt to
  influence the seller's view of what settlements
  are possible by making extreme offers and small
  concessions.
•  2. To get the seller to change her resistance
  point by influencing the seller's beliefs about
  the value of the house. The buyer may try to
  convince her to reduce her resistance point
  (e.g., by telling her that the house is very
  overpriced) and thereby increase the bargaining
  range.

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Fundamental Strategies

• 3. If a negative settlement range exists, to get
  the seller to reduce her resistance point in
  order to create a positive settlement range or to
  modify one's own resistance point to create that
  overlap. Thus, Monica could be persuaded to
  accept a lower price, or Larry could decide he
  has to pay more than he wanted to.
•  4. To get the other party to think that this
  settlement is the best that is possible-not that
  it is all she can get, or that she is incapable
  of getting more, or that the other side is
  winning by getting more. The distinction between
  a party's believing that an agreement is the best
  possible (and not the other interpretations) may
  appear subtle and semantic. However, in getting
  people to agree, it is important they feel as
  though they got the best possible deal. Ego
  satisfaction is often as important as achieving
  tangible objectives.
• Two tasks are important in all distributive
  bargaining situations (1) discovering the other
  party's resistance point and (2) influencing the
  other party's resistance point.

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Discovering The Other Partys Resistance

• Information is the life force of negotiation.
• The more you can team about the other party's
  outcome values, resistance point, feelings of
  confidence, motivation, and so on, the more
  capable you will be to strike a favorable
  agreement.
• At the same time, you do not want the other party
  to have some kinds of information about you.
• It is best to conceal your real resistance point,
  some of the outcome values, and confidential
  information about a weak strategic position or an
  emotional vulnerability.
• Alternatively, you do want the other party to
  have some information-some of it factual and
  correct, some of it contrived to lead the other
  party to believe things that are favorable to
  you.

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Discovering The Other Partys Resistance

• Because each side wants to get some information
  and to conceal other information, and because
  each side knows that the other also wants to
  conceal and get information, communication can
  become complex.
• Information is often conveyed in a code that
  evolves during negotiation.
• People answer questions with other questions or
  less-than-complete answers, yet for either side
  to influence the other's perceptions, they must
  establish some points effectively and
  convincingly.

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Influencing The Other Partys Resistance Point

• Central to planning the strategy and tactics for
  distributive bargaining is effectively locating
  the other party's resistance point and the
  relationship of that resistance point to your
  own.

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Influencing The Other Partys Resistance Point

• The resistance point is established by the value
  expected from a particular outcome, which in turn
  is the product of the worth and costs of an
  outcome.
• Larry sets a resistance point on the amount of
  money he would pay for a house based on the
  amount of money he can afford to pay (in total or
  in monthly mortgage payments), the estimated
  market value or worth of the house, and how other
  factors in his bargaining mix might be resolved
  (closing date, draperies, etc.).

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Influencing The Other Partys Resistance Point

• A resistance point will also be influenced by the
  cost an individual attaches to delay or
  difficulty in negotiation (an intangible) or to
  having the negotiations aborted.
• If Larry, who had set his resistance point at
  150,000, were faced with the choice of paying
  151,000 or living on the town square for a
  month, he might well reevaluate his resistance
  point.

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Influencing The Other Partys Resistance Point

• The following factors are important in attempting
  to influence the other person's resistance point
  
• (1) the value the other attaches to a particular
  outcome
• (2) the costs the other attaches to delay or
  difficulty in negotiations
• (3) the cost the other attaches to having the
  negotiations aborted

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Influencing The Other Partys Resistance Point

• When influencing the other's viewpoint, you must
  also deal with the other party's understanding of
  your value for a particular outcome, the costs
  you attach to delay or difficulty in negotiation,
  and your cost of having the negotiations aborted.
•  To explain how these factors can affect the
  process of distributive bargaining, we will make
  four major propositions
• 1. The other party's resistance point will vary
  directly with her estimate of the cost of delay
  or aborting negotiations.
• 2. The other's resistance point will vary
  inversely with his cost of delay or aborting.

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Influencing The Other Partys Resistance Point

• 3. A resistance point will vary directly with the
  value the other party attaches to that outcome.
  Therefore, the resistance point may become more
  modest as the person reduces the value for that
  outcome
• 4. The other's resistance point varies inversely
  with the perceived value the first party attaches
  to an outcome.

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Tactical Tasks

• Four important tactical tasks emerge for a
  negotiator in a distributive bargaining
  situation
• (1) assess the other party's outcome values and
  the costs of terminating negotiations
• (2) manage the other party's impression of one's
  own outcome values
• (3) modify the other party's perception of her
  own outcome values
• (4) manipulate the actual costs of delaying or
  aborting negotiations.

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Assess Outcomes Values and The Costs of
Termination

• 1. Indirect Assessment.
• Making direct observations, consulting readily
  available documents and publications, or talking
  to experts are some ways to do so.
•  2. Direct Assessment. In bargaining, one does
  not usually expect accurate and precise
  information about outcome values, resistance
  points, and expectations
•  When pushed to the absolute limit and when they
  require a quick settlement, the other party may
  explain the facts quite clearly.

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Managing The Other Partys Impressions

• Screening Activities. The simplest way to screen
  a position is to say and do as little as
  possible. This selective reticence reduces the
  likelihood of making verbal slips or presenting
  any clues that the other side could use to draw
  conclusions. A look of disappointment or boredom,
  fidgeting and restlessness, or probing with
  interest all can give clues about the importance
  of the points under discussion.

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Managing The Other Partys Impressions

• Direct Action to Alter Impressions. Negotiators
  can take many actions to present facts that will
  either directly enhance their position or make
  their position appear stronger to the other
  party. One of the most obvious methods is
  selective presentation, in which negotiators
  reveal only the facts necessary to support their
  case. Selective presentation can also be used to
  lead the other party to form the desired
  impression of your resistance point or to open up
  new possibilities for agreement that are more
  favorable to the presenter than those that
  currently exist. Another approach is to explain
  or interpret known facts in order to present a
  logical argument that shows the costs or risks to
  oneself if the other party's proposals were
  implemented.

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Modify The Other Partys Perceptions

• You may also try to make demands and positions
  appear more attractive or less unattractive to
  the other party.
• Interpret the outcomes of the other party's
  proposal.
• You can explain logically how undesirable it
  would be if the other party's outcome were
  realized.
• This could mean pointing out something that had
  been overlooked.

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Manipulate The Actual Costs of Delay or
Termination

• Research and practical experience suggest that a
  large majority of agreements in distributive
  bargaining are reached when the deadline is near.
  
• Manipulating a deadline or failing to agree by a
  particular deadline can be a powerful tool in the
  hands of the person who does not face deadline
  pressure.

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Manipulate The Actual Costs of Delay or
Termination

• There are three ways to manipulate the costs of
  delay in negotiation
• (1) plan disruptive action
• (2) ally with outsiders
• (3) manipulate the scheduling of negotiations

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Positions Taken During Negotiations

• At the beginning of negotiations, each party
  takes a position.
• These positions may then change in response to
  information from the other party or in response
  to the other party's behavior.
• Typically, the other party's position will also
  change during bargaining.
• Changes in position are usually accompanied by
  new information concerning the other's
  intentions, the value of outcomes, and likely
  places for settlement.
• Negotiation is iterative.

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Opening Offer

• Studies indicate that negotiators who make more
  extreme opening offers get higher settlements
  than do those who make low or modest opening
  offers.
• There are at least two reasons that an extreme
  opening offer is advantageous.
• First, it gives more room for movement in
  negotiation and there- fore allows more time to
  learn about the other party's priorities in order
  to influence them.
• Second, an extreme opening offer acts as a
  "metamessage" and may create, in the other
  party's mind, the impression that
• (1) there is a long way to go before a reasonable
  settlement is achieved
• (2) more concessions than originally intended may
  have to be made to bridge the difference between
  the two opening positions.

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Opening Offer

• The disadvantages of an extreme opening offer are
  these
• (1) it may be summarily rejected by the other
  party
• (2) it communicates an attitude of toughness that
  may be destructive to long-term relationships.

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Opening Stance

• Some negotiators adopt a position of moderation
  and understanding, seeming to say, "Let's be
  reasonable people who can solve this problem to
  our mutual satisfaction." Even if the attitude is
  not mirrored, the other's response is most likely
  to be constrained by this opening stance.
• To communicate the most effective message, a
  negotiator should try to send a consistent
  message through both attitude and opening offer.

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Initial Concessions

• An opening offer is usually met with a
  counteroffer, and these two offers define the
  initial bargaining range. Sometimes the other
  party will not counteroffer but will simply state
  that the first offer (or set of demands) is
  unacceptable and ask the opener to come back with
  "a more reasonable set of proposals." It is
  important to note that the first concession
  conveys a message,. frequently a symbolic one, to
  the other party about how you will proceed.
• Opening offers, opening stances, and initial
  concessions are elements at the beginning of
  negotiations that parties can use to communicate
  how they intend to negotiate.
• There are several reasons for adopting a
  flexible position. First, by taking different
  stances along the way, you can learn from the
  other party's responses about his or her outcome
  values and perceived possibilities. You may want
  to establish a cooperative rather than a
  combative relationship, hoping to get a better
  agreement. In addition, flexibility keeps the
  negotiations going the more flexible you seem,
  the more the other party will believe that a
  settlement is possible.

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Pattern Of Concession Making For Two Negotiators
20
15
Size of Concession (in dollars)
10
5
5
3
4
0
1
2
Concession Number
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Role Of Concessions

• A good distributive bar- gainer will not begin
  negotiations with the other party with an opening
  offer too close to the resistance point but,
  rather, will ensure that there is enough room in
  the bargaining range to make some concessions.
  The other party usually resents a
  take-it-or-leave-it approach an offer that may
  have been accepted had it emerged as a result of
  concession making may be rejected when it is
  thrown on the table and presented as a fait
  accompli. This approach, called Boulwarism, has
  been illustrated many times in labor relations.
•  
• There is ample data that parties feet better
  about a settlement when negotiations involved a
  progression of concessions.
•  
• Because concession making indicates an
  acknowledgment of the other party and a movement
  toward the other's position, it implies a
  recognition of that position and its legitimacy.
•  
• A reciprocated concession cannot be haphazard. If
  the giver has made a major concession on a
  significant point, it is expected that the return
  offer will be on the same item or one of similar
  weight and somewhat comparable magnitude. To make
  an additional concession when none has been given
  (or when what was given was inadequate) can imply
  weakness and can squander valuable maneuvering
  room. When receiving an inadequate concession, a
  negotiator may explicitly state what is expected
  before offering further concessions "That is not
  sufficient you will have to go up X before I
  consider offering any further concessions."
•  

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Pattern of Concesssion Making

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Final Offer

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Commitment

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Tactical Considerations In Using Commitments

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Establishing A Commitment

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Typical Hardball Tactics

• Good Guy/Bad Guy
• Highball/Lowball
• Bogey
• The Nibble
• Chicken
• Intimidation
• Aggressive Behavior

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Dealing With Typical Hardball Tactics

• Ignore Them
• Discuss Them
• Respond in Kind
• Co-Opt the Other Party