Chapter 3

Distributive Bargaining
 3-2

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

Distributive Bargaining

Also commonly known as:

 A “fixed-sum” process

 A “zero-sum” process

 “Win-lose” bargaining

 “Hard bargaining”
 3-4

Why?
 Because many situations are perceived as
single issue – money – and each dollar
“gained” by one party is “lost” by the
other party
 Easily identified example: the negotiated
sale of a big-ticket item (house, car)
between a seller and a buyer
 3-5

Three Components of a
Distributive Bargaining Model
1. The parties view each other as
adversaries
2. The objective of both parties is to
maximize their self-interest, or share of
“the pie”
3. The parties are only concerned about the
content of the current negotiation and act as if
they expect no future relationship
 3-6

Five Negotiation Skills

 Skill 3.1: Recognize a distributive
bargaining situation’s three key components
 Skill 3.2: Determine a reservation price
 Skill 3.3: Use bracketing of the other party’s
offer
 Skill 3.4: Recognize and use social norms to
evaluate offers
 Skill 3.5: Learn the framing of offers to
influence how they are perceived
 3-7

Chapter Case: Buying a Work of Art

 Successful California artist Chris Comte
has a painting titled “Sunday” on display
in her studio
 A vacationing couple from Texas admire
the painting one day, and return the next
to offer Chris $7,500. The listed price is
$12,500 and Chris tells them it is one of
her best works
 Why is this a distributive bargaining
situation?
 Classic Distributive 3-8

Bargaining Model
 0_____s________x________b_______$$

 s = seller’s reservation price (min. price)

 b = buyer’s reservation price (max. price)
 x = negotiated price or final agreement
 ZOPA = zone of possible agreement = s-b
(bargaining range or settlement range)
 3-9

“The Negotiation Dance”

 Inexperienced negotiators often use the
classic distributive bargaining model
 They start with opening offers and then
“dance around” with counteroffers until
one near “x” is agreed upon

 Why is this often NOT a good strategy?

 3-10

The Importance of Information

(cont.)
 Skilled negotiators utilize information to
support their offers or diffuse other offers
 Three types of information:
 Relational: Focus on relationship between the
parties
 Example: “How can you trust this is your best price?”
 3-11

The Importance of Information

 Substantive: Use of facts, reason, and logic
 Example: “Our price is based on the bank’s

approval loan limit”

 Procedural: Discuss the process
 Example: “We will engage in discussions

after we receive certain information”

 3-12

Opening Offers
 The most critical step in negotiations
 Yet … successful negotiators are split on
strategy:
 Many prefer to make the opening offer while
others prefer to receive the opening offer!
 3-13

Opening Offers (cont.)

 Anchoring = the first
number on the table
may “anchor” the
entire negotiation
 Why? People often
fixate on it
 3-14

Opening Offers (cont.)

 Three types of opening offers which can
anchor the negotiations
 Facts: “The average price paid in the past
year is $350,000”
 Extreme: “This is the most valuable lot and
home in the entire neighborhood!”
 Precedent: “My last supervisor always gave
me the highest rating”
 3-15

Inexperienced Negotiators
 May Easily Let the Opening Offer
Anchor the Deal
 3-16

Bracketing
 Defined: The logical process of moving
toward a middle point between the
opening offers
 Example: Seller’s listed price = $15,000;
buyer desires to pay $13,000, thus opens with
$11,000
 Thus, a negotiator may “bracket” the
other party’s opening offer by setting their
own opening offer the same distance
away from the desired value
Two-Party, Single-Issue Negotiation: A
Work of Art
 “Traps to Avoid” 3-18

Responses to an “Extreme”
Opening Offer
 Recognize it: as a “tactic,” not an insult
 Label it: “Outrageous” “Ridiculous”
 Follow up: with your own opening offer
anchored by facts, precedent, and other
information
 Social Norms 3-19

 After opening offers, how can parties distribute the

possible gain available to both sides?
 Negotiators often frame their offers by utilizing
social norms:
 Relational: desire to maintain a positive relationship
 Fairness: four variations
 Equality: “50-50” or “split the difference”

 Equity: proportional effort, inputs

 Need: proportional needs

 Status quo: keep current situation

 Reciprocity: respond to the change from a previous offer

with an equal change in your next counter
 Good faith: meet and discuss options; favor offers; use
information
 3-20

Does a Social Norm Provide the

“Fairest” Settlement?
 “The Consistency Principle”: people need
consistency and fairness in the negotiation
process
 The fairness norms may be the most
commonly utilized
 Which settlement values between $7,500
and $12,500 is “fairest”? “best”? “right”?
How Norms May Affect Counteroffers
 3-22

Counteroffers
 Framing: a key negotiation skill
 Defined: The wording or context of an
offer
 Why framing is a key skill
 “While facts and numbers are important,
people attach significant meaning to words,
which affects their views of a proposal”
--Theodore Kheel, The Keys to Conflict Resolution
 Tactics for Success: 3-23

“Wait to Counter”
 When receiving an offer wait a respectful
period before responding
 Why?
 A quick response implies you did not seriously
consider the offer
 The other party will feel better about the process
 Gives you time to develop a positive response:
 “We considered your offer and appreciate the
movement on your part. We ask that you seriously
consider our counteroffer…”
 3-24

Four Types of Frames

(applied to the Chapter Case)

 Reframing: “This work is a solid investment – the

only other Ireland piece by this artist just sold at
auction for $20,000”
 Focus framing: “This is the only painting of a lake
the artist has done, and he’ll probably never get
back to Ireland to paint another”
 3-25

Four Types of Frames

(applied to the Chapter Case)
 Contrast framing: “If you pay for it over 24
months, the cost per month is less than the
price of four tickets to a first-run play, but you
will enjoy the painting for many years”
 Negative framing: “You can wait to decide –
but another couple looked at it earlier today
and said they would be back”
Four Types of Frames Applied to
Chapter Case
 Reframing Offer 3-27
 William Ury, Getting Past No, suggests that
negotiators never say no or reject an offer
instead they reframe by using questions:
 Ask why: “Why did you select that exact
number?”
 Ask why not: “Why not ask for an estimate from
a professional appraiser?”
 Ask what if: “What if we agree to your price, but
you paid for delivery and warranty?”
 Ask for advice: “How would you suggest I
present this offer to my boss when she has
rejected that price?”
 3-28

Reframing Personal Attacks

 Personal attacks have become a common tactic –
don’t let emotions take over strategy
 How?
 Prepare: Expect personal attacks, control your
emotions
 Recognize: The other party needs to “blow off
steam”
 Reframe: Ignore the attack on you, reframe it on
the problem
 Silence: Communicates your displeasure and can
be a powerful tool
 3-29

Final Negotiated Price

 Shaking hands and exchanging a product
for money ends many negotiations
 Contingency contracts should be used if
future event may alter the agreement or
keep it from being signed
 3-30

Negotiated Settlement
Chapter Case “Buying a Work of Art”
 Opening offers: Buyers = $7,500

Seller =$12,500
 Reservation prices: Buyers = $11,000

Seller = $8,000
(ZOPA) = $8,000 - $11,000
 Seller’s 1st counteroffer = $11,000 (framed by citing

the number of hours invested = need norm; similar

to three others sold = equity norm)
 Buyer’s 1st counteroffer = $9,250
 3-31

Negotiated Settlement
 Seller’s 2nd counteroffer = $10,000
($1,000 concession)
 Buyers accept
 Negotiated price = X = $10,000
 Seller’s gain = $2,500 over buyer’s
opening offer
 Buyers’ gain = $2,500 less than seller’s
listed price
Negotiation Settlement: A Work of Art