[Why am I putting my reading notes here rather than just on a doc on my hard drive? Don't really know, but hey - it's a pensieve, right?]
Mnookin, R.H., et al., "Beyond winning: Negotiating to create value in deals and disputes." Cambridge, MA: The Belknap Press, 2000, pp.11-43:
The Tension between Creating and Distributing Value
Sources of value creation
- Differences between the parties: Trade to create value when differences exist: different access to resources, relative valuation, forecasts, risk preferences, time preferences.
- Noncompetitive similarities
- Economies of scale and scope
Distributive issues and strategic opportunism
[what a fancy name!]
key tension : "without sharing information it is difficult to create value, but when disclosure is one-sided, the disclosing party risks being taken advantage of."
also: "no matter how much value is created, at some point [negotiators] will still have to divide the larger pie"
Even when there is a ZOPA (Zone of Possible Agreement) between the two reservation values, an agreement may not be reached for two reasons:
1. Information asymmetries
Each side has material information not available to the other side.
2. Strategic Opportunism
"Neither negotiator knows how far it might be possible to push the other side. Negotiators rarely honestly reveal their reservation value."
In negotiation, we are trying to figure out answer to 2 questions: "First, what's the best agreement that I can reasonably hope to get? Second, can we make a deal here at all?"
"The essence of a lot of distributive bargaining is the attempt on the part of negotiators to shape each other's perceptions of what is possible."
Ten common hard-bargaining tactics
Hard-bargaining tactics have high costs and substantial risks. But it's important to understand the tactics. I consolidated # of tactics down from 10 in the reading.
- Extreme claims followed by small, slow concessions: +anchoring, +not giving away too much surplus, -protracted haggling
- Commitment tactics: -limiting one's freedom of action to influence the other
- Take-it-or-leave-it offers: -easily countered by making alternate offer
- Inviting unreciprocated offers: Just ask offerer to bid against himself.
- Belittling the other party's alternatives
- Good cop, bad cop
- Flinch: Keep demanding till other side "flinches";
Personal insults/feather ruffling: psychological advantage;
Bluffing, puffing, and lying;
Threats and warnings
A fourth source of value creation: avoid hard-bargaining
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Reduce transaction costs of reaching an agreement, and dampening strategic opportunism.
- Reduce transaction cost, both time and money: How?
- Reduce risk of deception/overcome info asymmetries: Reduce the asymmetries that are concerns of the other side. Reputation plays a big part here.
- Align future incentives: e.g. offer warranty when selling something.
Core Q: Create value while minimizing risks of exploitation
This tension cannot be resolved. We can only manage it.
Goal: "Design processes for negotiation that allow value creation to occur, when possible, while minimizing the risks of exploitation."
Preparation:
Issues:
Outline issues Brainstorm more issues
Interests:
Consider interests – both own and the other side’s Contemplate value-creating opportunities
[to be continued for completion soon]