Distributive Bargaining
Professor Bruce Fortado
MAN 4441
University of NorthFlorida
Distributive bargaining is often described in a number of common ways. Some people label is as awin-lose process. It is bargaining over a fixed pie. It is sometimes referred to as being zero-sum in nature. In other words, what one side gains the other side loses.
Why are people so preoccupied with money? People often keep score by counting dollars. One can gauge progress in this fashion. Winning also creates a sense of exhilaration. At times, people get caught up in the process. Some may forget who is an ally and who is an adversary. Distributive bargaining is frequently a highly charged process. More than money is at stake. One also must consider factors such as status, pride, respect, self esteem and face. Some people denigrate distributive bargaining as a lose-lose process. While both sides may suffer monetary loses (e.g. a strike where one side loses profits and the other wages), this lose-lose stance ignores the social and psychological factors involved. This is naive. One might argue this is an attempt to sway people toward an integrative mindset based on selective presentation. Ironically, the critics of distributive bargaining appear to be employing a distributive tactic here.
A careful balance must be struck to succeed. One should balance perceptions of firmness with those of flexibility. One must also balance perceptions of reasonableness with those of weakness. One must also balance the presentation of information, charting a path considering the need for clarity to move towards goals, and concealment of weaknesses and disguising priorities to avoid being taken advantage of.
The Bargaining Zone Model
[Walton and McKersie (1965). The Behavioral Theory of Labor Negotiations]
Tangible (measurable) goals are easier to deal with in planning. Each team is depicted as meeting before engaging the other side to identify their common interests and objectives. They should set three positions: namely, an initial position (usually extreme), a target (the desired outcome), and a resistance point (a bottom line which the party is extremely reluctant to go beyond, based on resource constraints, other available options and personal preferences). When the resistance points of the two parties do not overlap, a negative bargaining zone is said to exist. When the resistance points or the targets overlap, a positive bargaining zone exists.
Negative Settlement
Range
LOW ______HIGH
Buyer Buyer Buyer Seller Seller Seller
InitialTarget Resistance Resistance Target Initial
Position Point Point Position
Positive Settlement
Range
LOW ______HIGH
BuyerBuyer Seller Buyer Seller Seller
InitialTarget Resistance Resistance Target Initial
Position Point Point Position
LOW ______HIGH
BuyerSeller Seller Buyer Buyer Seller
InitialResistance Target Target Resistance Initial
PositionPoint Point Position
Looking at the above diagrams, can you identify the situations where an agreement will be reached? If so, can you go a step further and identify where an agreement will be reached? In a general sense, one should always ponder what a model does and does not have to offer.
First, this model shows there are instances where no agreement can be reached (at least not unless one or both of the parties move their resistance points). Second, the model is realistic in the sense people really do think in terms of opening positions and bottom lines. Third, this model does help to show the potential to lose with openness. One could go all the way to the his/her resistance point when a settlement in the middle of a positive bargaining zone might have been viewed as “fairer.” Fourth, it shows the necessary, but not sufficient conditions, for a settlement to be reached. One can see the potential for a settlement, but one cannot guarantee the parties will settle or predict where that settlement might be. The parties might not settle even though they have a positive bargaining zone due to factors such as (a) a bad past relationship inhibits conversation and concession making, (b) people may be too ambitious and fail to get a momentum started that would result in settlement, and (c) the interactions that take place may offend one or both parties, so they lose interest in tangible matters.
In general, one would expect that the greater the area of overlap, the greater the chances for settlement. On occasion, though, when people perceive the other side is far more agreeable than expected, they may raise their goals. We assume that people will have carefully set their points and simply follow these guides in the ensuing discussions, but this is not always the case. In some labor negotiations, fellow team members recognize some of their team’s objectives are unrealistic, and instead of taking action themselves, they let the other side take the flack, and try to get their team mates to come around later behind the scenes.
Multiple issue tables can be used to deal with more complex negotiations. Of course, it is hard to enter many social and psychological issues into a table like this. The easiest issues to enter are monetary tangible issues. Multiple issue tables allow the team to (1) prioritize the issues, (2) evaluate tradeoffs as package offers are made, and lastly (3) one can evaluate the negotiator based on what he achieved relative to the targets and resistance points the team set.
Evaluating a negotiator’s performance is not an easy matter. One would not be happy to see a negotiator that went beyond numerous resistance points, and one that came in with several targets is doing better than one who came back with only resistance point type settlements. The major evaluation problem, however, remains that you never know what the other party might have settled for. Put differently, they would be foolish to ever reveal what their true target and resistance points were if they got a good deal. This would only leave ill feelings. A few short sighted people may rub in the fact they bested you. Creating ill feelings like this is short sighted if you ever have to deal with that person or his/her associates down the line. A counterpart might claim you got them to their bottom line, but you in fact will not know if this is the case. Laying it on too thick, with comments like “You sure are good at this, I would not have paid a penny more,” may make some people suspicious rather than reassure them. Perhaps it is better to look tired and say very little.
Fundamental Strategies
* You should consider whether this is a long term or short term strategy.
* You should also consider whether there are short and long term consequences.
* One should not think of these strategies as mutually exclusive. You can do several at once. One might consider, however, whether the strategies are logically consistent.
1) Settle as close to your counterpart’s resistance point as possible
- gather information on your counterpart
- make your position seem more appealing
- make them reluctant to stay at their position
2) Move your counterpart’s resistance point (or your own)
What are resistance points based on?
- affordability = cost-benefit in terms of difficulty, time, etc.
- difficulty of going elsewhere (self and other)
One can attempt to change: (a) perceptions of one’s ability to wait; (b) perceptions of the cost-benefit of breaking off; (c) impressions of outcome valuation; (d) the actual costs of delay/aborting.
3) If there is a negative settlement range, move either or both resistance points to create an overlap. One could also package to avoid an impasse on a specific issue.
4) Create the perception that this was the best possible settlement. This does not always translate into stroking them, you could simply look tired. When a settlement comesquickly and easily, the “winner”may become unhappy because he/she concluded he/she could have gotten a better deal if he had bargained harder. This has been termed “winner’s curse.”
Tactical Tasks
I. Size up the Other’s Position
The better your information is, the better the deal you can get.
Indirect Assessment
Gather information indirectly
-size up your competitor’s situation
-examine inventory levels, bank balances, unity, etc.
- gather documentary evidence as well as conduct
For example, one might develop a relationship with a person who moves from site to site, like an IBM repairman, and subtly gain information via small talk.
Direct Assessment
Gather information directly (The accuracy of the sources varies greatly.)
- When people are in bad financial shape, they will open up and show it.
- Espionage: spies, interceptions, bugs, alcohol to loosen tongues. IRS agents will reputedly listen outside open doors when clients and their representatives are conversing.
-Provoke an angry outburst, say “You are just playing politics,” or stalk out to free up information. It is possible to tell the other side a threatening story, and evaluate their reaction. One could alternatively ask the same question(s) to numerous people on the other side and check the consistency of their responses. Similarly, when one can confirm information via multiple sources, one can be confident in the results.
II. Managing Other’s Impression of your Position
Screening Activities= In essence, one stalls and misleads one’s counterpart in order to obtain concessions, and provide time to discover more information. Eventually, the person raises his/her initial position near the end of the talks. If they then offer to split the difference, when they have already worn down the other side via repeated concessions, the likelihood of a favorable outcome is enhanced. Here, people will start saying very little, and what they do say will largely be questions about the other person’s position. They will send signals, such as tapping, they might stop writing, they may be silent, moan, or roll up their sleeves, indicating they require concessions, and this sure could take a long time. If one did decide to present an opening position, aspects of screening could still be used. For instance, one could also drain one’s counterpart by raising an enormous number of issues, which will consume research efforts, confuse matters, and hide priorities.
Lowball/Highball Initial Offers = Starting at what seems like a very extreme position is a high risk tactic. Some opposing negotiators may be unprepared to counter this tactic. They may get intimidated, flustered, and end up going beyond their resistance point. Alternatively, the other side may be turned off. On American Pickers, highball prices are taken as a sign the item is not really for sale. The other side islikely to go elsewhere if this is possible. If it is not possible togo elsewhere, the negotiator might dig in until the other side comes to a more realistic position. On American Pickers, the ice is sometimes broken by reaching an agreement on some other item. There is an old adage that people only gets one chance to make a first impression. If the other side decides you are disreputable, it may be hard to change this mindset later.
Cohen (1980) has described a stereotype he termed “the Soviets.” These negotiators come in with high initial demands. They make few concessions and do so very slowly. When they do make a concession, they complain emotionally about having done this. This overall strategy provides room for maneuver.It can intimidate some people. The perpetrators gain time to study the situation. Yet, they run the risk of offending the other side. The victims may well break off talks or become hostile. Soviets will try to have secret talks, and get multiple parties vying for the same deal. They will repeatedly play one off against another in an effort to get the best deal possible. These figures also tend to insulate themselves by claiming they have to check with superiors, because they do not have the authority to make decisions on their own. This means much of the time the other side is essentially negotiating by him/herself. A string of concessions may be made with nothing being given in return. Each concession is viewed as a sign of weakness rather than a conciliatory gesture that should be reciprocated. Emotional manipulations, including screaming and walking out may be used to evoke guilt and/or anxiety. They ignore deadlines, acting as if they have all the time in the world. Such tactics do no work well in ongoing relationships.The person executing them must not have a conscience.Furthermore, the victim must beeither unaware, or be unable to go elsewhere.
Selective Presentation = One reports favorable facts, leaving out anything that might detract from their effort to gain a favorable settlement. This works best if any part of the report can be attributed to a neutral or expert source. One powerful way to carry this out is to present the facts from the other person’s point of view and interpret the results. If the selective presentation has obvious omissions and the other side points this out, you will lose credibility.
Emotional Ploys = Some people may provide information and make concessions based on tactics that manipulate their emotions (punch their buttons).
* Screaming outbursts may offer public humiliation and lower the other’s self esteem. One person may make a scene, and after this person is out of the room, another team member can appeal to the other side as the more reasonable one who has to try to make the best of the situation. This type of ploy is sometimes labeled as playing “good cop and bad cop.”
* Guilt may be evoked by a person crying, silence or saying “Don’t worry about me.”
* Laughter may belittle a person into making further concessions, i.e. you are not being realistic (This of course depends on the context, because a joke might also indicate the ice is breaking).
* A person may act dumb and ask for help. Some people will feel compelled to offer help. Others will try to take advantage of the weak opponent.
* A veiled threat may be sent via a remark such as “What would happen if ...” or a story is told about something unfortunate that happened in another negotiation.
The Nibble = After one consumes an enormous amount of time and it appears a deal has been struck, one side raises one more “must have” demand. The other party must either “ante up” at the last minute, or walk away from a deal they have invested a great deal of time and energy in. Sometimes the party executing the nibble will claim it was an inadvertent math error, a miscalculation, or it just dawned on them. One can counteract a nibble by laughing very hard and asking the person to repeat it for a friend. I had a real estate guest that tore up the contract and started to walk off, only to find the person had a satisfactory contract in his brief case just in case this contingency arose.
Bogey = Normally the length of time and the degree of detail devoted to a subject provides some indication of how important it is. Some people make a long and protracted fuss over what is actually a trivial point to them. Later, they drop it. The message is “You owe me one.”
Of course, if the opposing side drops it first, during this big fuss, this tactic would backfire.
III. Modifying Other’s Perception of Other’s Position
You could make the outcomes they ask for less attractive by pointing out something they missed. The presentation could be made to the most receptive person on the other side. One could also raise the costs of their objective higher, or conceal positives. You will not seem patronizing when you present facts that can be verified. Experts can be used to add credibility. It also takes time and resources to question their findings.
You can almost always use questions to your advantage. You could ask them to help you by explaining how something works. If you can raise problems that they are unable to address, they will recognize they are failing to persuade you. Cohen (1980) talks about how the Japanese are known for asking the “five whys.” If you cannot respond to repeated whys, you really do not have the depth of knowledge necessary to sell them, and you realize it. You might ask them to exercise some self-criticism, covering the weaknesses, concerns or problems as they see them. You can tell them you believe in getting a well-rounded picture before getting into anything, and would not trust any “perfect deal.”
Case example = When I was in graduate school, I took several classes with Mr. English. He was working full time and going to school part-time. I was watching his presentation in one class, and a person asked a question. He replied that the point the person was making was exactly what he was trying to get across. It did not seem that way to me, but I gave it little further thought. The next time I was in a class watching Mr. English present, I felt he had made a grave error. I inquired about the matter. Once again, he replied “That is what I am saying.” This time there was no doubt in my mind that this was how he reversed course and covered himself. This tactic only works well the first time you use it. People are normally confused and too uncertain to confront you at that point. Repeated usage will prove counterproductive. All one would have to do is ask if this summary reflected his/her view. Next, you could present the other point of view, thereby embarrassing the person.