Module 1 What is Negotiation? Alternative Methods of Making Decisions
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- The Run Down Bar Example
- The Negotiators’ Surplus The settlement price (designate as P*)
- Negotiating situations where both negotiators know each other’s exit price
- Find a distribution of the equity that met both negotiators’ objectives
gap is any area between the two exit prices that does not overlap with one another.
The essential condition for a single-issue negotiation to be successful is for the exit prices of each negotiator at least to meet. The settlement range is the single point 120. 
The settlement range is the overlap between the exit prices of each negotiator, because within this range a settlement is possible, though, as always, it is not assured Negotiator(s) might accept an offer in the settlement range or: keep trying to improve the price and see just how far he will go delaying a settlement might fall foul of the other’s impatience after a generous offer he waits that the next move should come from the seller and not from him such misunderstandings can stimulate a lot of aggravation 
When a negotiator discloses his entry price he also implies something about his exit price. If buyers offer (entry price) is higher than sellers entry price, the seller will immediately revise his negotiating range and will increase (≥ buyer’s entry) the exit price to match the buyers entry. The Run Down Bar Example: Seller believes selling a run down bar and sets their price accordingly. Buyer is being something else, which is to them much more valuable (real estate), but did not disclose their intentions. Sellers sold at their asking price. Buyers flipped the property for 15x profit. Moral: Know what the value may be, even if not obvious. The Negotiators’ Surplus The settlement price (designate as P*), is any price in the overlap between the exit prices (settlement range) where the negotiators meet. The entire settlement range is the negotiators’ surplus that has to be distributed between them. The difference between the exit price of either negotiator and the settlement price, which is somewhere in the settlement range, is the sellers’ surplus/ buyers’ surplus: 
These are just the principles. Neither negotiator knows exactly how large the settlement range is. The further away negotiators move from their entry positions, the harder they often fight to protect their positions. It is entirely possible that there is a settlement range between negotiators, but they still end up in deadlock because of this. How the Negotiators’ Surplus helps form a strategy There is no way of knowing for sure that any particular offer is as far as (exit price) the other negotiator will go. Assume that the first offer is never an exit offer. It follows that all offers should be treated as if there is another, last or exit, offer in reserve. The broad strategy is to move the price to the others exit price. Sharing the surplus, knowing the other’s exit price, but it gives an advantage to other negotiator, unless it discloses a false one. To be sure that other disclose his correct exit price built trust with repeated deals or eg. a money back guarantee if buyer is not satisfied. Mediation could be defined as a method of discovering if there is an available surplus for the negotiators to distribute without jeopardizing their longer term interests. If you believe the other negotiator is pretending that his current offer is his exit price, you could express your doubts about the offer with statements like: ‘I know you can do better than that’. ‘Nobody can realistically expect to offer so little with the profit levels you have attained this year’. ‘Are you kidding?’ ‘Can you be serious?’ ‘Do you think I am stupid?’ Should the last offer be close to, or at, his exit point, and you are pushing him to move but he cannot. The situation for him is analogous to that of the innocent prisoner interrogated as a suspected member of a conspiracy. The more the negotiator protests that his current price is his exit price, the more he convinces a negotiator who is predisposed to assume that he is lying that his suspicions of duplicity are justified. Frustration leads to anger and in negotiation it leads to deadlock (in interrogation, unhappily, it can lead to violence) You have no way of knowing for sure that any particular offer is as far as the other negotiator will go. Always assume that the first offer is never an exit offer, refrain from treating a first offer as if it were. All offers should be treated as if there is another, last or exit, offer in reverse. Negotiating situations where both negotiators know each other’s exit price, or where they can make a good guess at it: partners negotiating the distribution of a know commission, sharing a known prize in a lottery. Fairness as a distribution principle operates most effectively where there are no asymmetries in the claims of the negotiators for their share of the sum available. To prevent these asymmetries being overlooked by a one-sided manipulation of the negotiating process, we should arrange for each negotiator to declare their price in some honest manner at the start of the negotiation rather than leave it to be inferred, and perhaps misjudged, or even misrepresented, during the negotiation. The strategic problem of uncertainty about the values and interests of the other negotiator can be addressed by looking for clues as to what determines where, and why, the other negotiator is likely to place his entry and exit points. People do not set their goals arbitrarily, and searching for the basis of their goals is essential if we are to prepare for what they might look for when they attempt to do business with us. Do not underestimate the powerful background effect of the notion of equity in the distribution of a surplus between the negotiators. It pervades a great deal of the thinking people have about what is, and is not, a good deal for them. Find a distribution of the equity that met both negotiators’ objectives Download 0.61 Mb. Share with your friends:
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