Page 208 - DMGT519_Conflict Management and Negotiation Skills

Conflict Management and Negotiation Skills

Notes Bazerman and Gillespie also point out that contingency contracts may not be right in every
situation due to their potential limitations. First, they require a continuing relationship between
the parties, which might not always be possible. Second, they may not be easily enforceable, and
court costs can be prohibitive. And third, they require transparency—the future event must be
easily and objectively measured and not subject to manipulation by either party.
Let us now return to the Chapter Case. The seller listed her initial price or opening offer at
$12,500 and the buyers made an opening offer of $7,500. The parties then decided, but kept
confidential, their bottom line or reservation price. The seller decided she could accept no less
than $8,000 and still realize a reasonable profit. The buyers decided their absolute limit was
$11,000. Thus the range of possible settlement amounts, or zone of possible agreement (ZOPA),
became $8,000–$11,000—although neither side could know the range since neither knew the
other party’s reservation price. So how might this classic distributive bargaining situation have
been settled? Because the buyer made the first verbal offer of $7,500, it is likely that the seller
would make the first counteroffer. She would likely utilize the good faith bargaining norm and
decide to show her willingness for give-and-take by making a counteroffer of $11,000, and
frame her offer with, “I’m very pleased that you are sincerely interested in Sunday. I know you
have looked at it before. But this work is similar in size, detail, and content to three others that
I sold in this price range over the last year, all with about the same number of hours invested.
Also, I consider it to be one of my best paintings. For you I’m willing to come down $1,500, to
$11,000.” By citing the number of hours she has invested in the painting, the seller brought the
need norm (see p. 67) into the negotiation. The buyers realize that $11,000 is their reservation
price, and if they are particularly anxious to close the deal, or perhaps if they are inexperienced
negotiators, they might agree to $11,000. But they likely would rely on the equality fairness
norm and offer to split the difference of $3,500 ($11,000–$7,500) and thus offer $9,250. They
would decide to make this offer because it is an equal sacrifice by both parties, and because it’s
not a round number and is based on a defensible position, which makes them more comfortable
in offering it to the seller. Since the new counteroffer of $9,250 is higher than her reservation
price, the seller might accept it if she was significantly motivated to sell. Or, she might decide
that since the buyers have only made one counteroffer, they have not made their “highest and
final offer,” and thus she offers to make a second, but smaller, concession of $1,000, again noting
that the work is similar to others that sold at higher prices. At this point the buyers might agree
to her second counter of $10,000, and thus close the deal. Both parties will likely believe they
have negotiated a “good deal.” The seller gained $2,500 over the buyers’ opening offer, and
realized $2,000 more than her reservation price. The buyers also perceived they gained, because
the final price was $2,500 less than the listed price, and they paid $1,000 below their reservation
price.

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