Distributive Bargaining {Lecture Notes}

FellowBuddy.com is an innovative platform that brings students together to share notes, exam papers, study guides, project reports and presentation for upcoming exams.
We connect Students who have an understanding of course material with Students who need help.
Benefits:-
# Students can catch up on notes they missed because of an absence.
# Underachievers can find peer developed notes that break down lecture and study material in a way that they can understand
# Students can earn better grades, save time and study effectively
Our Vision & Mission – Simplifying Students Life
Our Belief – “The great breakthrough in your life comes when you realize it, that you can learn anything you need to learn; to accomplish any goal that you have set for yourself. This means there are no limits on what you can be, have or do.”
Like Us - https://www.facebook.com/FellowBuddycom

1. Distributive BargainingDistributive Bargaining

2. Distributive BargainingDistributive Bargaining
Defined:Defined:
““A negotiation method in which two parties A negotiation method in which two parties
strive to divide a fixed pool of resources, strive to divide a fixed pool of resources,
each trying to maximize its share of the each trying to maximize its share of the
distribution”distribution”
3-2

3. Distributive BargainingDistributive Bargaining
Also commonly known as:Also commonly known as:

A “fixed-sum” processA “fixed-sum” process

A “zero-sum” processA “zero-sum” process

““Win-lose” bargainingWin-lose” bargaining

““Hard bargaining”Hard bargaining”
3-3

4. Why?Why?

Because many situations are perceived as Because many situations are perceived as
single issue – money – and each dollar single issue – money – and each dollar
“gained” by one party is “lost” by the other “gained” by one party is “lost” by the other
partyparty

Easily identified example: the negotiated Easily identified example: the negotiated
sale of a big-ticket item (house, car) sale of a big-ticket item (house, car)
between a seller and a buyerbetween a seller and a buyer
3-4

5. Three Components of a Three Components of a
Distributive Bargaining ModelDistributive Bargaining Model
1. The parties view each other as 1. The parties view each other as
adversariesadversaries
2. The objective of both parties is to 2. The objective of both parties is to
maximize their self-interest,maximize their self-interest, or share of or share of
“ “the pie”the pie”
3. The parties are only concerned about the 3. The parties are only concerned about the
content of the content of the current negotiationcurrent negotiation and act as if and act as if
they expect no future relationshipthey expect no future relationship
3-5

6. Five Negotiation SkillsFive Negotiation Skills

Skill 3.1: Recognize a Skill 3.1: Recognize a distributive distributive
bargainingbargaining situation’s three key situation’s three key
componentscomponents

Skill 3.2: Determine a Skill 3.2: Determine a reservation pricereservation price

Skill 3.3: Use Skill 3.3: Use bracketingbracketing of the other party’s of the other party’s
offeroffer

Skill 3.4: Recognize and use Skill 3.4: Recognize and use social normssocial norms
to evaluate offersto evaluate offers

Skill 3.5: Learn the Skill 3.5: Learn the framingframing of offers to of offers to
influence how they are perceivedinfluence how they are perceived
3-6

7. Chapter Case: Buying a Work of Chapter Case: Buying a Work of
ArtArt

Successful California artist Chris Comte Successful California artist Chris Comte
has a painting titled “has a painting titled “Sunday” on Sunday” on display indisplay in
her studioher studio

A vacationing couple from Texas admire A vacationing couple from Texas admire
the painting one day, and return the next the painting one day, and return the next
to offer Chris $7,500. The listed price is to offer Chris $7,500. The listed price is
$12,500 and Chris tells them it is one of $12,500 and Chris tells them it is one of
her best worksher best works

Why is this a distributive bargaining Why is this a distributive bargaining
situation?situation?
3-7

8. Classic Distributive Classic Distributive
Bargaining ModelBargaining Model

0_____0_____ss________________xx________________bb_______$$_______$$

s s = seller’s reservation price (min. price)= seller’s reservation price (min. price)

bb = buyer’s reservation price (max. price) = buyer’s reservation price (max. price)

x = x = negotiated price or final agreementnegotiated price or final agreement

ZOPA = zone of possible agreement = s-b ZOPA = zone of possible agreement = s-b
(bargaining range or settlement range)(bargaining range or settlement range)
3-8

9. ““The Negotiation Dance”The Negotiation Dance”

Inexperienced negotiators often use the Inexperienced negotiators often use the
classic distributive bargaining modelclassic distributive bargaining model

They start with opening offers and then They start with opening offers and then
“dance around” with counteroffers until “dance around” with counteroffers until
one near “x” is agreed uponone near “x” is agreed upon

Why is this often NOT a good strategy?Why is this often NOT a good strategy?
3-9

10. The Importance of Information The Importance of Information
(cont.)(cont.)

Skilled negotiators utilize information to Skilled negotiators utilize information to
support their offers or diffuse other offers support their offers or diffuse other offers

Three types of information:Three types of information:

Relational: Focus on relationship between the Relational: Focus on relationship between the
partiesparties

Example: “How can you trust this is your best price?”Example: “How can you trust this is your best price?”
3-10

11. The Importance of InformationThe Importance of Information

Substantive: Use of facts, reason, and logicSubstantive: Use of facts, reason, and logic

Example: “Our price is based on the bank’s Example: “Our price is based on the bank’s
approval loan limit”approval loan limit”

Procedural: Discuss the processProcedural: Discuss the process

Example: “We will engage in discussions Example: “We will engage in discussions
after we receive certain information” after we receive certain information”
3-11

12. Opening OffersOpening Offers

The most The most critical stepcritical step in negotiations in negotiations

Yet … successful negotiators are split on Yet … successful negotiators are split on
strategy:strategy:

Many prefer to Many prefer to makemake the opening offer while the opening offer while
others prefer to others prefer to receive receive the opening offer!the opening offer!
3-12

13. Opening Offers (cont.)Opening Offers (cont.)

AnchoringAnchoring = the first = the first
number on the table number on the table
may “anchor” the may “anchor” the
entire negotiationentire negotiation

Why? People often Why? People often
fixate on itfixate on it
3-13

14. Opening Offers (cont.)Opening Offers (cont.)

Three types of opening offers which can Three types of opening offers which can
anchor the negotiationsanchor the negotiations

Facts: “The average price paid in the past Facts: “The average price paid in the past
year is $350,000”year is $350,000”

Extreme: “This is the most valuable lot and Extreme: “This is the most valuable lot and
home in the entire neighborhood!”home in the entire neighborhood!”

Precedent: “My last supervisor always gave Precedent: “My last supervisor always gave
me the highest rating”me the highest rating”
3-14

15. Inexperienced NegotiatorsInexperienced Negotiators

May Easily Let the Opening Offer May Easily Let the Opening Offer
Anchor the DealAnchor the Deal
3-15

16. BracketingBracketing

Defined: The logical process of moving Defined: The logical process of moving
toward a middle point between the toward a middle point between the
opening offers opening offers

Example: Seller’s listed price = $15,000; Example: Seller’s listed price = $15,000;
buyer desires to pay $13,000, thus opens with buyer desires to pay $13,000, thus opens with
$11,000$11,000

Thus, a negotiator may “bracket” the other Thus, a negotiator may “bracket” the other
party’s opening offer by setting their own party’s opening offer by setting their own
opening offer the same distance away opening offer the same distance away
from the desired valuefrom the desired value
3-16

17. Two-Party, Single-Issue Negotiation: A
Work of Art

18. ““Traps to Avoid” Traps to Avoid”
Responses to an “Extreme” Responses to an “Extreme”
Opening OfferOpening Offer

Recognize it: as a “tactic,” not an insultRecognize it: as a “tactic,” not an insult

Label it: “Outrageous” “Ridiculous”Label it: “Outrageous” “Ridiculous”

Follow up: with your own opening offer Follow up: with your own opening offer
anchored by facts, precedent, and other anchored by facts, precedent, and other
informationinformation
3-18

19. Social NormsSocial Norms

After opening offers, how can parties distribute the After opening offers, how can parties distribute the
possible gain available to both sides?possible gain available to both sides?

Negotiators often Negotiators often frame their offersframe their offers by utilizing by utilizing
social norms:social norms:

Relational: desire to maintain a positive relationshipRelational: desire to maintain a positive relationship

Fairness: four variationsFairness: four variations

Equality: “50-50” or “split the difference”Equality: “50-50” or “split the difference”

Equity: proportional effort, inputsEquity: proportional effort, inputs

Need: proportional needsNeed: proportional needs

Status quo: keep current situationStatus quo: keep current situation

Reciprocity: respond to the change from a previous offer Reciprocity: respond to the change from a previous offer
with an equal change in your next counterwith an equal change in your next counter

Good faith: meet and discuss options; favor offers; use Good faith: meet and discuss options; favor offers; use
informationinformation

3-19

20. Does a Social Norm Provide Does a Social Norm Provide
the “Fairest” Settlement?the “Fairest” Settlement?

““The Consistency Principle”: people need The Consistency Principle”: people need
consistency and fairness in the negotiation consistency and fairness in the negotiation
process process

The fairness norms may be the most The fairness norms may be the most
commonly utilizedcommonly utilized

Which settlement values between $7,500 Which settlement values between $7,500
and $12,500 is “fairest”? “best”? “right”?and $12,500 is “fairest”? “best”? “right”?
3-20

21. How Norms May Affect Counteroffers

22. CounteroffersCounteroffers

Framing: a key negotiation skill Framing: a key negotiation skill

Defined: The wording or context of an Defined: The wording or context of an
offeroffer

Why framing is a key skillWhy framing is a key skill

““While facts and numbers are important, While facts and numbers are important,
people attach significant meaning to words, people attach significant meaning to words,
which affects their views of a proposal”which affects their views of a proposal”
--Theodore Kheel, --Theodore Kheel, The Keys to Conflict ResolutionThe Keys to Conflict Resolution
3-22

23. Tactics for Success:Tactics for Success:
“Wait to Counter”“Wait to Counter”

When receiving an offer wait a respectful When receiving an offer wait a respectful
period before responding period before responding

Why?Why?

A quick response implies you did not seriously A quick response implies you did not seriously
consider the offerconsider the offer

The other party will feel better about the process The other party will feel better about the process

Gives you time to develop a positive response:Gives you time to develop a positive response:

““We considered your offer and appreciate the We considered your offer and appreciate the
movement on your part. We ask that you seriously movement on your part. We ask that you seriously
consider our counteroffer…”consider our counteroffer…”
3-23

24. Four Types of FramesFour Types of Frames
(applied to the Chapter Case)(applied to the Chapter Case)

ReframingReframing: “This work is a solid investment – the : “This work is a solid investment – the
only other Ireland piece by this artist just sold at only other Ireland piece by this artist just sold at
auction for $20,000”auction for $20,000”

Focus framingFocus framing: “This is the only painting of a lake : “This is the only painting of a lake
the artist has done, and he’ll probably never get the artist has done, and he’ll probably never get
back to Ireland to paint another”back to Ireland to paint another”
3-24

25. 
Contrast framingContrast framing: “If you pay for it over 24 : “If you pay for it over 24
months, the cost per month is less than the months, the cost per month is less than the
price of four tickets to a first-run play, but you price of four tickets to a first-run play, but you
will enjoy the painting for many years”will enjoy the painting for many years”

Negative framingNegative framing: “You can wait to decide – : “You can wait to decide –
but another couple looked at it earlier today but another couple looked at it earlier today
and said they would be back”and said they would be back”
Four Types of FramesFour Types of Frames
(applied to the Chapter Case)(applied to the Chapter Case)
3-25

26. Four Types of Frames Applied to
Chapter Case

27. Reframing OfferReframing Offer

William Ury, William Ury, Getting Past NoGetting Past No, suggests that , suggests that
negotiators never say no or reject an offer negotiators never say no or reject an offer
instead they instead they reframereframe by using questions: by using questions:

Ask why: “Why did you select that exact Ask why: “Why did you select that exact
number?”number?”

Ask why not: “Why not ask for an estimate from a Ask why not: “Why not ask for an estimate from a
professional appraiser?”professional appraiser?”

Ask what if: “What if we agree to your price, but Ask what if: “What if we agree to your price, but
you paid for delivery and warranty?”you paid for delivery and warranty?”

Ask for advice: “How would you suggest I present Ask for advice: “How would you suggest I present
this offer to my boss when she has rejected that this offer to my boss when she has rejected that
price?”price?”
3-27

28. Reframing Personal Reframing Personal
AttacksAttacks

Personal attacks have become a common tactic –Personal attacks have become a common tactic –
don’t let emotions take over strategydon’t let emotions take over strategy

How?How?

Prepare: Expect personal attacks, control your Prepare: Expect personal attacks, control your
emotionsemotions

Recognize: The other party needs to “blow off Recognize: The other party needs to “blow off
steam”steam”

Reframe: Ignore the attack on you, reframe it on Reframe: Ignore the attack on you, reframe it on
the problemthe problem

Silence: Communicates your displeasure and Silence: Communicates your displeasure and
can be a powerful toolcan be a powerful tool
3-28

29. Final Negotiated PriceFinal Negotiated Price

Shaking hands and exchanging a product Shaking hands and exchanging a product
for money ends many negotiationsfor money ends many negotiations

Contingency contracts should be used if Contingency contracts should be used if
future event may alter the agreement or future event may alter the agreement or
keep it from being signedkeep it from being signed
3-29

30. Negotiated SettlementNegotiated Settlement
Chapter Case “Buying a Work of Art”Chapter Case “Buying a Work of Art”

Opening offers: Buyers = $7,500Opening offers: Buyers = $7,500
Seller =$12,500Seller =$12,500

Reservation prices: Buyers = $11,000Reservation prices: Buyers = $11,000
Seller = $8,000Seller = $8,000
(ZOPA) = $8,000 - $11,000(ZOPA) = $8,000 - $11,000

Seller’s 1Seller’s 1
stst
counteroffer = $11,000 (framed by citing counteroffer = $11,000 (framed by citing
the number of hours invested = need norm; similar to the number of hours invested = need norm; similar to
three others sold = equity norm)three others sold = equity norm)

Buyer’s 1Buyer’s 1
stst
counteroffer = $9,250 counteroffer = $9,250
3-30

31. Negotiated SettlementNegotiated Settlement

Seller’s 2Seller’s 2
ndnd
counteroffer = $10,000 ($1,000 counteroffer = $10,000 ($1,000
concession)concession)

Buyers acceptBuyers accept

Negotiated price = X = $10,000Negotiated price = X = $10,000

Seller’s gain = $2,500 over buyer’s Seller’s gain = $2,500 over buyer’s
opening offeropening offer

Buyers’ gain = $2,500 less than seller’s Buyers’ gain = $2,500 less than seller’s
listed pricelisted price
3-31

32. Negotiation Settlement: A Work of Art