Distributive Negotiations

Question 1

BATNA: best alternative to a negotiated agreement

Answer 1

represents the best available outcome if you were to walk away from the current negotiation, plan b or next best option.

Question 2

BATNA leverage

Answer 2

is your biggest source of leverage in distributive negotiation.
- conversely, a weak BATNA makes it harder to obtain your desired outcome

Question 3

Signaling BATNA

Answer 3

• best course of action might instead be signal your BATNA and avoid giving your BATNA away explicitly

Question 4

Reservation Price - 3

Answer 4

• represents the highest (lowest) point a buyer (seller) is willing to go.
• walkaway point. Beyond the reservation price, you would prefer no agreement.
• also represents your point of indifference for whether you will accept a deal or purse your BATNA

Question 5

revealing reservation price

Answer 5

• never reveal your reservation price
• if your reservation price becomes known, the other part can push for an agreement that is only marginally acceptable to you

Question 6

reservation price change during negotiation

Answer 6

• your reservation price should not change unless BATNA or terms of deal substantively change

Question 7

Reservation price before

Answer 7

-it is imperative to have a clearly defined, quantifiable reservation price before you start negotiating

Question 8

BATNA vs. Reservation Price

Answer 8

• BATNA helps establish your reservation price
• Reservation price should be close to your BATNA, but not necessarily the same

Question 9

Reservation Price can differ.

Answer 9

reservation price can be different across people because it includes personal factors.
- opportunity costs, switching costs
- personal values (brand loyalty, sense of pride)

Question 10

ZOPA: zone of possible agreement

Answer 10

• represents the bargaining zone between the buyer’s reservation price and seller’s reservation price
• if the buyer’s reservation price > or = to the seller’s reservation price, a zone of possible agreement exists (positive bargaining zone)

Question 11

Zopa zone

Answer 11

between Seller— buyer’s reservation price

Question 12

Negative Bargaining Zone

Answer 12

If buyer’s reservation price is smaller or equal to the seller’s reservation price, there is no possible agreement.
- In reality, people regularly violate their reservation prices and reach agreement.

Question 13

Agreement Bias

Answer 13

tendency to agree or settle in a negotiation even if the outcome is disadvantages.

Question 14

Factors that contribute to settling

Answer 14

• failure to properly identify reservation price
• snuck cost fallacy
• desire to maintain positive image

Question 15

Target Price

Answer 15

represents the ideal outcome

Question 16

target price - 3

Answer 16

• be ambitious but realistic.
• If you don’t ask for something, you can’t get it
• don’t want to offend other party or get taken as a joke either

Question 17

determine target price. research & goal

Answer 17

• research: what is the other party’s BATNA? Reservation price?
• Goal: get as close to other party’s reservation price as possible.

Question 18

Anchoring

Answer 18

whoever makes the first offer is most likely to end up with more favorable outcome.
- sets tone for negotiation and influences subsequent counteroffers

Question 19

first offer

Answer 19

• careful prep and check assumptions
• go as high as you can go without embarrassing yourself
• ask a third party whether you think your first offer is sound

Question 20

tips for delivering initial offer

Answer 20

• portray confidence from prep
• offers are deemed as more reasonable when provided with rationale
  – reference other data points that support your offer or position, past agreements, historical averages future expectations

Question 21

foregoing first offer

Answer 21

• if you have no idea what the other party’s BATNA might be
• if you care about a future long-term relationship with the other party
  – then ask yourself why you don’t know. could you have possibly known?

Question 22

distributive strategies during the negotiation

Answer 22

• focus on your target price
• get other party to focus on their reservation price
• the more you can get the other party to focus on their reservation price, the more likely you will end up with better outcome

Question 23

Weak BATNA

Answer 23

should never be revealed
- a weak BATNA makes it harder to obtain your desired outcome

Question 24

Strong BATNA

Answer 24

• strong BATNA could provide leverage… but you might give more information than you needed to or could offend other party.
• the stronger the BATNA, the easier it is to get close to your desired outcome.