Strategy and

Tactics of
Distributive
Bargaining
Distributive Bargaining: Slicing the Pie

• also known as competitive, adversarial, or

win-lose bargaining

• the goals of one party are usually in

fundamental and direct conflict with the
goals of the other party

• resources are fixed & limited, and both

parties want to maximize their share of
the resources
• one party tries to give information to the
other party only when it provides a
strategic advantage

• negotiation power depends on the

information one can gather about the
other party

• negotiating parties focus much on their

differences that they ignore what they
have in common
Basic Concepts

Target Point – the point at which a

negotiator would like to conclude
negotiations; his optimal goal or
aspiration

Buyer’s Target Point (BT) – the optimal

(lowest) price buyers would like to pay

Seller’s Target Point (ST) – the optimal

(highest) price sellers would like to set
Resistance (or Reservation) Point – the
negotiator’s bottom line

Buyer’s Resistance Point (BR) –the highest

price buyers are willing to pay

Seller’s Resistance Point (SR) – the lowest

price sellers are willing to set
Asking Price – the initial price set by the
seller; seller’s opening bid

Initial Offer – the first price that the buyer

will quote to the seller; buyer’s opening
bid

Settlement Point – the price that both

buyer and seller will agree upon
Bargaining Range – the spread between
the resistance points; a.k.a. settlement
range or zone of potential agreement

Bargaining Range Absolute Value – the

difference between the buyer’s & seller’s
resistance points
Positive Bargaining Range – when the
buyer’s resistance point is above the
seller’s; negotiation is possible

Seller’s Bargaining Range

Positive Bargaining Zone

Buyer’s Bargaining Range

Seller’s Target Point (ST)

Buyer’s Resistance Point (BR)

Seller’s Resistance Point (SR)
Buyer’s Target Point (BT)
 Negative Bargaining Range – when the
seller’s resistance point is above the
buyer’s; negotiation is impossible

Seller’s Bargaining Range

Negative Bargaining Zone

Buyer’s Bargaining Range

Seller’s Target Point (ST)

Seller’s Resistance Point (SR)

Buyer’s Resistance Point (BR)

Buyer’s Target Point (BT)
Negotiator’s Surplus – the positive
difference between the settlement point
and the negotiator’s resistance point

Seller’s Bargaining Range

Seller’s
Surplus Buyer’s
Surplus

Buyer’s Bargaining Range

BT SR Settlement BR ST
Point
Illustrative Case: Larry and Monica

Larry wanted to move closer to where he

works. After some time, he found a house
that met his requirements. The seller,
Monica, set the asking price at $145,000,
which was $10,000 above what Larry hoped
to pay but $5,000 below the most he would
be willing to pay. Larry knew that the more
he paid for the house, the less he would be
able to make some very desirable
alterations, buy draperies and some new
furniture, and hire a moving company.
Monica already had attractive drapes in the
house. She was moving to a new house; if
she could not use the drapes in the new
house, Larry might be able to purchase
them or ask Monica to include them with
the sale. The same might be true for
several rugs, hall tables and other items.

Note:
Assume further that the seller’s resistance
point is 20% below the asking price
Identify the following elements:

1. Larry’s target point

2. Larry’s resistance point
3. Monica’s asking price
4. Monica’s resistance point
5. Bargaining range
6. Bargaining range absolute value
7. Settlement point (seller’s surplus is 65%)
8. Settlement point (buyer’s surplus is 90%)
Answers:

1. Larry’s target point: $135,000

Monica’s asking price, $145,000, was
$10,000 above what Larry hoped to pay:
$145,000 - $10,000 = $135,000

2. Larry’s resistance point: $150,000

Monica’s asking price, $145,000, was
$5,000 below the most Larry would be
willing to pay:
$145,000 + $5,000 = $150,000
3. Monica’s asking price: $145,000
Monica’s asking price was already
explicitly stated in the case

4. Monica’s resistance point: $116,000

The seller’s resistance point was assumed
to be 20% below the seller’s asking
price:
($145,000)(0.20) = $29,000
$145,000 - $29,000 = $116,000
5. Bargaining range: $116,000 - $150,000
This is simply the spread between the
buyer’s and seller’s resistance points

6. Bargaining range absolute value: $34,000

The difference between the buyer’s &
seller’s resistance points:
$150,000 - $116,000 = $34,000
7. Settlement point (if the seller’s surplus is
65%): $138,100
The difference between the buyer’s &
seller’s resistance points (bargaining
range absolute value):
$150,000 - $116,000 = $34,000
Seller’s surplus is 65% of the bargaining
range absolute value:
($34,000)(0.65) = $22,100
Settlement point (SR + seller’s surplus):
$116,000 + $22,100 = $138,100
 Seller’s Bargaining Range

Seller’s
Surplus
(65%) Buyer’s
Surplus

Buyer’s Bargaining Range

$22,100

BT SR Settlement BR ST
Point
$116,000 $138,100 $150,000

$34,000
8. Settlement point (if the buyer’s surplus is
90%): $119,400
The difference between the buyer’s &
seller’s resistance points (bargaining
range absolute value):
$150,000 - $116,000 = $34,000
Buyer’s surplus is 90% of the bargaining
range absolute value:
($34,000)(0.90) = $30,600
Settlement point (BR - buyer’s surplus):
$150,000 - $30,600 = $119,400
 Seller’s Bargaining Range

Buyer’s

Surplus
Seller’s
Surplus
(90%)

Buyer’s Bargaining Range

$30,600

BT SR Settlement BR ST
Point
$116,000 $119,400 $150,000

$34,000
Fundamental Strategies:
I. Push for a settlement close to the other
party’s resistance point
II. Influence the other party to change its
resistance point
III. Convert a negative settlement range
into a positive settlement range
IV. Convince the other party that your
suggested settlement point is the best
possible deal
BOTTOMLINE: discover and influence the
other party’s resistance point
Positions Taken During Negotiation:

• Opening Offer
• Opening Stance
• Initial & Subsequent Concessions
• Final Offer
Guidelines for Making Concessions:

1. Give yourself enough room to make

concessions.
2. Try to get the other party to start
revealing their needs and objectives
first.
3. Be the first to concede on a minor issue
but not the first to concede on a major
issue.
4. Make unimportant concessions and
portray them as more valuable than they
are.
5. Make the other party work hard for
every concession you make.
6. Use trade-offs to obtain something for
every concession you make.
7. Generally, concede slowly and give a
little with each concession.
8. Do not reveal your deadline to the other
party.
9. Occasionally say “no” to the other
negotiator.
10. Be careful trying to take back
concessions even in “tentative”
negotiations.
11. Keep a record of concessions made in
the negotiation to try to identify a
pattern.
12. Do not concede “too often, too soon, or
too much.”
Establishing a Commitment:

• Public Pronouncement
• Linking with an Outside Base
• Increase the Prominence of
Demands
• Reinforce the Threat or Promise
Closing the Deal:

• Provide Alternatives
• Assume the Close
• Split the Difference
• Exploding Offers
• Sweeteners
Hardball Tactics – designed to pressure
negotiators to do things they would not
otherwise do; work best against poorly-
prepared negotiators

Dealing with Hardball Tactics:

• Ignore Them
• Discuss Them
• Respond in Kind
• Co-opt the Other Party
Typical Hardball Tactics:

• Good Cop/Bad Cop

• Lowball/Highball
• Bogey
• The Nibble
• Chicken
• Intimidation
• Aggressive Behavior
• Snow Job