Distributive Negotiation

Most theorists distinguish distributive from integrative negotiation, each with its own process. Like it or not, the vast majority of negotiations are “distributive.” That is, they focus on how to distribute resources among parties.

Preparing for a negotiation includes identifying issues, identifying one’s own needs and setting goals, and learning as much as possible about opponents. It may include selecting and training a negotiating team. Figure 17.1 illustrates the bargaining range from the buyers’ perspective. Sellers start high and concede downward—a dealer in new cars, a prosecutor working on a plea bargain, or a student trying for a high grade. Buyers start low and concede upward—a customer looking for a new car, a defendant trying to get a short sentence, or a professor offering a low grade. The “bargaining range” defines all offers each negotiator will make. If buyer and seller bargaining ranges overlap, a “settlement range” exists that is mutually acceptable. Any non-coerced agreement within it is fair to both parties by definition.

The most crucial planning decision negotiators make is setting their “deadlock price,” sometimes called their “reserve” or “security” price. Roger Fisher (1980) introduced the concept of the Best Alternative to Negotiated Agreement [BATNA]. The concept of a BATNA has the advantage of requiring negotiators to consider their options if agreement is not reached. A simple example is the buyer who needs a car only to get to work. The BATNA induces him to consider alternatives such as riding a bike (at least in good weather) or taking a bus, which can help him decide how much to spend on a car and thus what sort of car to buy.

Deadlocks are the point above which buyers will not go (designated BD in Figure 17.1), and below which sellers will not go (designated SD). It is useful for bargainers to pre-plan resistance points representing what they regard as “Realistic” and “Optimistic” settlements, as well as their “First” offer (such as a seller’s advertised price for a house or sticker price for a car). These points form the mnemonic “FORD” (Churchman 1995). Phrasing such as “I would be happy to get W,” “I hope to get X,” “I must have Y,” and “I will not go below Z” suggest the existence of resistance points. As each one is reached, bargainers should slow down, perhaps caucus or take a break, reassess, change tactics, or tread carefully before resuming the pattern of concessions. Subjects in bargaining simulations did better when they had such targets in addition to deadlock prices (Raiffa1982).

Looking at the negotiation from the perspective of the buyers, they will know their own bargaining range and resistance points but can only estimate those of the seller. Figure 17.1 reflects this by indicating precise amounts for the buyer’s bargaining range but a probability curve for the seller (shown as normal but it could be skewed) divided into four sections representing the buyers’ estimated range of the sellers’ First, Optimistic, Realistic and Deadlock positions and the probability that each guess is correct. One function of bargaining is to refine the estimate of the opponents’ bargaining range. Underlying this rubric is the assumption that parties are rational actors who are able to prioritize goals, assess risks, and make tradeoffs.

The second, exploratory, phase focuses on establishing relationships and communicating needs to opponents. Culture, personality, hard and soft power, history, and the issues all play a role in determining relationships, which can be formal or informal, friendly or hostile, businesslike or casual.

The third, bargaining, phase consists of making and responding to specific proposals. Tactics aimed at making demands and threats credible dominate this phase (e.g., Churchman 1995, Lewicki 1993, Zartman, 1982). Ellen Raider (personal conversation) uses the mnemonic AEIOU to classify them. Slightly reformulated, A is for attacking, E is for evading, I is for informing, O is for opening, and U is for uniting tactics. Proposals include an offer, however vague (“we might be able to pay a little more if you were able to deliver sooner”) and might include components such as conditions, threats, or ultimatums. Subsequent proposals often provide a face-saving rationale for making concessions, as the negotiations bring the parties closer together and finally reach agreement or deadlock. Offers and counteroffers can be nearly instantaneous, but in important negotiations, there can be considerable time between them for study and reply.

The fourth, closing, phase is possible when all proposals meet the needs of all parties. It might include terms, provisions for ratification, monitoring, insuring performance, and resolving disputes. Some researchers have developed formulas that predict the concession rate and likely outcome. The simplest and most common is the halfway point between opening offers, if that point is better than the deadlock point of all parties. Figure 17.1 indicates the Agreement () reached in this negotiation, in this case at a point between the realistic price for each party. The surplus is the difference between the agreed and one’s deadlock price. The value of the effort is the surplus divided by the number of hours preparing for and completing the negotiation. However, just as poker players seldom reveal their cards if everyone else folds lest it give away whether or not they were bluffing, bargainers seldom reveal their deadlock price to others even after agreement lest it affect future negotiations.

Negotiation is not limited to two-person, one-issue situations. One party may consist of two or more people and there may be three or more parties. Any of these situations complicates negotiation. A team can use classic tactics such as good cop/bad cop or can try to exhaust an outnumbered opponent. On the other hand, it can be the target of divide–and-conquer tactics. The possibility of alliances further complicates multi-party negotiations. Shifting alliances are particularly common in legislatures, as individual representatives form temporary alliances on particular bills.

Negotiations usually involve more than one issue, each with its own bargaining range. If so, negotiators may go through each issue phase-by-phase, may go through each phase issue-by-issue or may follow some iterative process. The difference is important, as the second approach makes it easier to use linkage to reach agreement. Consider the situation in Figure 17.2. If the negotiators use the common technique of splitting the difference, each will receive half the value of each item for a total value of $1.50. If instead Negotiator One concedes all of Item B to Negotiator Two in exchange for receiving all of Item A for himself, each negotiator receives $2 in value, a 33% increase for both parties. Total value has grown from $3 to $4.³

Whenever there are as many or more issues as there are negotiators, and the negotiators differ as to the relative importance of the issues, linkage provides a way to “enlarge the pie” and achieve a “win-win” result. The most common tradeoffs involve quality (a discounted demonstrator), quantity (a discount for a large purchase), and time (an extra charge for early delivery). This suggests that complicating rather than simplifying a negotiation by increasing the number of issues improves the odds of developing a mutually advantageous agreement.