PROGRAM ON N EGOTIATION AT H ARVARD LAW SCHOOL

AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

APPLETON V. BAKER

TEACHER’S PACKAGE

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 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

APPLETON V. BAKER

TEACHING NOTES

Appleton v. Baker is a two-party negotiation for the purchase and sale of an unimproved
adjacent lot.

OVERVIEW

The Appletons and Bakers own homes on adjacent parcels of land. Larry Appleton has been
transferred by his company and is selling his home. The Appletons also own a half lot between
their lot and the Bakers' lot, which is too small to be buildable in its own right. The Appletons
wish to sell this half lot to the Bakers, because the purchasers of their home are not interested in
the half lot, and the Bakers are the only abutters who would be interested. The Bakers would
like to purchase the lot because they wish to add onto their house, which is already near the lot
line. There is a large bargaining zone ($5,000 to $20,000), but neither party is aware of the other
party's interests. There are few, if any, opportunities for joint gains. The lawyers for the two
parties are meeting to negotiate the transaction.

MECHANICS

Time Required: for playing game - 30 minutes

(allow 5 additional minutes if renegotiation option is chosen)
for debriefing - 45 to 60 minutes
(allow 15 to 30 additional minutes if renegotiation option is chosen)

Group Size: 2 persons

Materials: Confidential Instructions for Appleton's Agent

Confidential Instructions for Baker's Agent

This case was written by Michael Wheeler and Lawrence Susskind. Copies are available online at www.pon.org, Telephone: 800-258-4406, Fax:
617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission of the
Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College.
All rights reserved. (Rev. 9/08)
APPLETON V. BAKER – Teaching Notes

PROCEDURE

1. Divide the group into teams of two and hand out the instructions for reading (reading the
instructions takes approximately five minutes). The parties are not allowed to show their
confidential instructions to the other side. You may wish to review the roles with the Appletons'
agents and the Bakers' agents separately.

2. Allow the teams 20 minutes to negotiate the transaction.

3. Display the price reached by each team in ascending order, or call upon selected negotiating
pairs to report on what happened in their negotiation.

4. [Optional] Allow the same teams five minutes to renegotiate, this time with full information,
and display and discuss the prices reached during the second round of negotiations.

DEBRIEFING

Display all of the outcomes. When numerous pairs negotiate this simulation at the same time,
the resulting prices will vary dramatically. This allows for an opportunity to discuss how
different strategies led to widely varying outcomes. The following questions can be used as a
basis for discussion of the outcomes.

Some of the typical outcomes include:

1. The Appletons anchor the give-and-take by being the first to suggest a number. They
mention $7,500. The Bakers hesitate briefly (not wanting to appear too eager), then agree to
settle at that level. The Appletons sense that they asked for too little. They are angry at
themselves but it's too late.

2. In an effort to preempt what they expect to be an onerous request, the Bakers anchor the give-
and-take by indicating a willingness to pay $15,000. The Appletons quickly agree. The Bakers
realize they overestimated what the Appletons were expecting. They are angry and vow to make
life difficult for the Bakers until they move.

3. The Appletons decide to take a risk and possibly make a killing on this deal, seeing as how
they're moving away and won't have to deal with the Bakers again. They ask for $35,000, giving
themselves lots of room to make concessions and still do well. Outraged, the Bakers retort that
the Appletons will never be able to sell this useless lot and offer a token payment of $1,500. The
Appletons come down to $25,000; the Bakers make a final offer of $3,000. They stalemate at
this point. Neither wants to make further concessions or lose face. They break off negotiations
after incorrectly concluding that the gap between them is unbridgeable.

Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College. All rights reserved. (Rev. 9/08) 2
APPLETON V. BAKER – Teaching Notes

1. What were the strategies of those teams which had the highest selling price? The lowest
selling price?

Positional Bargaining-

In this exercise, there is only one variable, the price over which bargaining takes place. This
kind of "fixed pie" attribute means that whatever one party gains, the other loses. After the
opening position is offered, each party makes small concessions. Concessions are made
grudgingly, until a compromise position is found or until the parties reach an impasse. This type
of bargaining builds little trust between the parties, as there is no opportunity to develop a
relationship and no incentive to explore each other's interests. The result is a process which
moves "downward" from an opening position. This is typical of most distributive bargaining
situations.

In positional bargaining (and other forms as well) parties identify their BATNA (your Best
Alternative To a Negotiated Agreement). What is the best you can do if you do not reach
agreement at the bargaining table? This is the point below (or above) which it is not in your
interest to accept an offer. It is important for all parties in a negotiation to determine BATNA
(or at least estimate what they think their BATNA is) before negotiations begin. This will
provide a way to evaluate options or packages developed during the bargaining process. Each
party's objective in a negotiation should be to meet its interests; having an estimate of one's
BATNA provides a reference point for purposes of evaluating offers.

A BATNA is determined by analyzing the alternatives to any agreement with the other parties to
the negotiation. A target is set based on the expectations of what will occur within the
negotiation itself.

2. If given teams did not reach agreement, why did they not?

The bargaining zone in this simulation is quite large ($5,000 to $20,000). This allows ample
opportunity to reach agreement. A bargaining zone is the area between the resistance or
reservation prices of the buyer and seller. It is within this area that an agreement can be found.
Most distributive bargaining focuses on determining whether or not such a zone of agreement
exists and then on finding the point within this range on which the parties can agree. The
strategic aim of this type of negotiation is to get the final agreement as close to the other party's
reservation value as possible, maximizing the "surplus" above one's own reservation value.

One danger in this type of bargaining is that parties can "out-strategize" themselves and fail to
reach agreement when agreement is possible, by committing too quickly or strongly to an
inflated reservation value or by grossly misperceiving the reservation value of the other party.

3. What are the advantages and disadvantages of making the first offer?

Making the first offer has the effect of anchoring the negotiation. This is advantageous when the

Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College. All rights reserved. (Rev. 9/08) 3
APPLETON V. BAKER – Teaching Notes

initial price is well-chosen: it provides the other party information and may limit the amount of
posturing by the other side. However, anchoring may not be advantageous if an "unreasonable"
price is named: this may have the effect of causing the other party to disengage from the
negotiation.

4. Possibilities for deceit in distributive bargaining.

Positional or distributive bargaining is a process in which one party is trying to change the
other's perception of the bargaining zone and their position on it. This feature of distributive
bargaining leads to bluffing, lying, and threat-making. (Thomas Schelling, The Strategy of
Conflict)

It is often to one party's advantage to lie about their real bottom line or to misrepresent their
ability to be flexible in accommodating the needs of the other party. In a one-shot negotiation, in
which the parties will never see each other again, an argument can be made for saying anything
you need to say to get the best deal you can. If this includes lying about your reservation
value—as the argument goes—that’s just a risk of the bargaining game. Of course, you might
also suspect similar behavior from your adversary. Strategically too, they can backfire and you
can fail to reach an agreement when one is possible.

More important, if the relationship between the parties is an ongoing one, lying and
misrepresentation can damage that relationship and impose costs other than financial losses on
one or both parties.

5. [Optional] How did the renegotiation change the nature of the outcome, if at all?

People in the middle on Round 1 stay in the middle. People at one end insist on objective
criteria or a fair process (outside appraisal) the second time.

Those who feel they were "deceived" or treated unfairly in the first round get another chance.
Often, these pairs may not reach an agreement at all the second time.

The most important conceptual points to cover in the debriefing are: a discussion of distributive
bargaining and the calculation of a BATNA; the dangers in distributive bargaining of finding no
agreement when agreement is in fact possible; and the ethics of lying and misrepresentation in
negotiation.

Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College. All rights reserved. (Rev. 9/08) 4
 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

APPLETON V. BAKER

Confidential Information for Appleton's Agent

You represent Larry Appleton, owner of lots 42 and 43 on Willow Street. His single family
home sits on lot 43; he acquired lot 42 in 1978 from the estate of old man Moore. Lot 42 is only
20,000 square feet, so it is not a legal building lot; (in this neighborhood the legal minimum area
for a building lot is 40,000 square feet.) (There are 43,560 square feet in one acre.) Appleton
bought the land thinking that he might want to build a tennis court, but he never got around to it.

Appleton has recently been transferred by his company, and he is moving out of state. His house
has been on the market for a month, and just yesterday he signed a purchase and sale agreement
on it. Because the purchaser was not particularly interested in the spare half lot (lot 42),
Appleton has elected to hold on to it. The buyer has said that he will pay an extra $5,000 for the
adjoining lot, but this is less than the $7,000 Appleton paid for it.

Appleton has asked you to meet with the Bakers who live next door or with their Agent. When
Appleton was trying to get lot 42 from the Moore estate, he approached the Bakers about buying
it together, but they were not interested then. Although there are no animosities between the two
families, they have had little contact over the years. Ralph Baker teaches at the local high
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school; his wife is a part-time bookkeeper. They are homebodies, while the Appletons lead an
active social life. Appleton is not at all sure that the Bakers would be interested in the property
at this point, but added yard space might serve as a buffer between them and the new neighbors.
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If the Bakers are not interested, Appleton will reluctantly sell the small lot to the purchasers of
his house for $5,000. Because Lot 42 is not buildable, it really has value only to abutters. He
has already learned that the people who now own Moore's old place are not interested. You have
been retained to see if you can negotiate a better price for Lot 42.

This case was written by Michael Wheeler and Lawrence Susskind. Copies are available online at www.pon.org, Telephone: 800-258-4406, Fax:
617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission of the
Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College.
All rights reserved. (Rev. 9/08)
APPLETON V. BAKER: CONFIDENTIAL INSTRUCTIONS FOR APPLETON’S AGENT

Review Copy
Do Not Reproduce

Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College. All rights reserved. (Rev. 9/08)
 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

APPLETON V. BAKER

Confidential Information for Baker's Agent

You represent the Bakers, who have been approached by an attorney representing their Willow
Street neighbors, the Appletons. The Bakers live on lot 41; the Appletons live on 43 and own
the half lot, lot 42, that lies between them.

The Bakers suspect that this inquiry involves the possible sale of the Appleton house and land,
which have been on the market for a month or so. The Bakers are not at all interested in the
house or Lot 43 on which it stands, but they would very much like to acquire Lot 42. The
Appletons acquired that parcel in 1978 from the Moore estate, apparently intending to build a
tennis court. The Appletons asked the Bakers to go in on the venture with them, but as your
clients do not play tennis, they declined to do so. They do know that the price of the land at that
time was around $7,000. At present the parcel is just open land.

The zoning in the neighborhood is one-acre (one acre = 43,560 square feet) and Lot 42 contains
only 20,000 square feet. Therefore the parcel is not buildable in its own right. It is particularly
attractive to the Bakers, however, because it would allow them to expand their house to the
south. The Bakers would like to build a new kitchen and solar greenhouse with southern
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exposures. At present they are prevented from doing so because their house is close to their lot
line. While they could expand in other directions, building to the south is cheaper and more
attractive than any of the other options.
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The Bakers are frugal people. Mr. Baker is a school teacher, and Mrs. Baker is a bookkeeper.
Their savings were recently augmented by an inheritance from a favorite aunt. They know that
real estate prices have gone up considerably in recent years, and would be willing to pay up to
$20,000 for the lot if need be. They would like to purchase the land for less, though, so that they
will have more money left for construction. You have been instructed to try to purchase Lot 42
for your clients; they are not interested in the other property.

This case was written by Michael Wheeler and Lawrence Susskind. Copies are available online at www.pon.org, Telephone: 800-258-4406, Fax:
617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission of the
Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College.
All rights reserved. (Rev. 9/08)
APPLETON V. BAKER: CONFIDENTIAL INSTRUCTIONS FOR BAKER’S AGENT

Review Copy
Do Not Reproduce

Copyright © 1987, 1995, 2008 by the President and Fellows of Harvard College. All rights reserved. (Rev. 9/08)
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