Chapter 3: Distributive Negotiation: Claiming Value

CHAPTER 3
Distributive Negotiation: Claiming Value

OVERVIEW

In this chapter, the instructor can introduce the bargaining zone concept and work through
positive and negative bargaining zones. The rest of the chapter is divided into two major skill
areas: (1) how to increase one’s slice of the negotiation pie; and (2) understanding the
psychology (and economics) of fairness. I usually cover pie-slicing skills in detail, as students
are so preoccupied with this subject; and later in the term, I raise the topic of fairness. There is
any number of ways to make this material come alive in the classroom, ranging from good
old-fashioned lecture to small discussion groups. Another alternative is to give students a
“homework” assignment to analyze their own negotiations in terms of pie-slicing strategies.
The instructor can collect these and share the “best” examples with the entire class. Given that
distributive negotiation is competitive, a discussion of lying and ethics is also appropriate.

LECTURE OUTLINE

I. THE BARGAINING ZONE

A. Bargaining zone, or zone of possible agreements (ZOPA), represents the
range between each party’s reservation points. The bargaining zone can
be positive or negative.
(see EXHIBITS 3-1A AND 3-1B)
1. If parties fail to reach agreement in positive bargaining zone, the result is suboptimal
2. In a negative bargaining zone, parties should pursue other alternatives

B. Bargaining surplus is the amount of overlap between parties’ reservation

points

C. Negotiator’s surplus (see EXHIBIT 3-2) is the positive difference between

the settlement outcome and the negotiator’s reservation point; it
indicates mixed-motive nature of negotiation

II. VALUE-CLAIMING STRATEGIES

A. Accurately assess your BATNA

B. Unpack alternatives

C. Improve your BATNA

D. Determine your reservation point, but do not reveal it

1
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

E. Research the other party’s BATNA and estimate their reservation point

F. Set high aspirations (be realistic, but optimistic)

1. Your first offer represents the most important anchor point
2. When negotiators make proposals that the other party considers extreme, it may cause
the chilling effect (see EXHIBIT 3-3)
3. Promotion-focused negotiators conceptualize goals as ideals and opportunities
4. Prevention-focused negotiators conceptualize goals as obligations and necessities
5. The winner’s curse occurs when the negotiator’s first offer is immediately accepted by
the counterparty and signals that the negotiators did not set his or her aspirations high
enough
6. Avoid Boulwarism, or making one’s first offer your final offer

III. FIRST OFFERS

A. Anchoring Information Model (AIM Model)
1. Model that predicts when and why making the first offer helps or hurts negotiators
2. According to the model, first offers have two effects:
a) They serve as anchors that pull final settlements toward the initial first-offer
value which usually produces a first-mover advantage
b) They convey information about the sender’s priorities which makes the sender
vulnerable to exploitation and increases the risk of a first-mover disadvantage
3. Negotiators need two things when considering whether to make the first offer:
a) Are they well informed about the negotiation object or service?
b) How well informed is the counterparty about the same negotiation object or
service?
4. Symmetric information: negotiator is advised to open first when both parties have
symmetrical knowledge about the negotiation object or service (see EXHIBIT 3-4)
5. Asymmetric information: negotiator is advised to let the counterparty open first
when knowledge about the negotiation object or service is uneven

B. Anchoring Effect
1. The first offer that falls within the bargaining zone acts as a powerful anchor point in the
negotiation
2. A negotiator’s first offer acts as an anchor for the counterparty’s counteroffer
3. Ideally, your opening offer should not give away too much of the bargaining zone

C. Range Offers
1. The key disadvantage with stating a range is that the counterparty may focus
overwhelmingly on the attractive endpoint from their point of view
2. The tandem anchoring account argues that counterparties are influenced by both
endpoints of the range as they evaluate the proposer’s reservation price as well as how
polite they believe an extreme offer would be

2
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

3. Of the four types of range offers (point ($100), backdown ($80–$100), bracketing ($90–
$110), and bolstering ($100–$120)), recipients who received bolstering-range offers
assumed the negotiator had a more attractive reservation price than a negotiator who
made a point offer

D. Precise versus Round Numbers

1. People habitually use round numbers as offers in a negotiation but precise numbers are
more potent psychological anchors as offers because the proposer is perceived to be
better informed
2. Whereas it is true that greater precision by the proposer enhances the anchoring effect in
the recipient, it actually reduces the extremity of the offer that the proposer makes
3. Greater price precision works when the recipient is an amateur, but can backfire when
the recipient is an expert unless the precise number is followed by a legitimate rationale

E. Early versus Late First Offers

1. Late first offers are more likely to lead to creative agreement that meets the parties’
interests as compared to early first offers because late first offers allow negotiators to
learn about each other’s interests

F. Re-anchoring
1. Even if the counterparty beats you to punch and makes the first offer, it is unwise to
accept the first offer
2. Negotiators first offers who are accepted immediately are less satisfied with the
negotiation than negotiators who first offers are not immediately accepted
3. Counteroffers do two things:
a) They diminish the prominence of the counterparty’s initial offer as an anchor
point
b) They signal your willingness to negotiate
4. Do not adjust your BATNA based upon the counterparty’s offer

G. Concessions—reductions that a negotiator makes during the course of a

negotiation
1. Negotiators need to consider four things when formulating counteroffers and
concessions:
a) Concession reciprocity (reciprocity or aversion)
b) Pattern of concessions (unilateral, bilateral, premature)
c) Magnitude of concessions
d) Timing of concessions
2. Reciprocity versus Aversion
a) Concession reciprocity refers to the tendency of negotiators to reciprocate
concessions
b) Concession aversion refers to the tendency for some negotiators to be disinclined
to make concessions
3. Concession Pattern
a) Unilateral concessions are concessions made by one party
3
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

b) Bilateral concessions are concessions made by both sides

c) Many negotiators make premature concessions where they make more than one
concession in a row before the other party responds or counteroffers
d) It is an almost universal norm that concessions take place in a quid pro quo fashion,
with each party to the negotiation expecting a back-and-forth exchange of
concessions between parties
4. Magnitude of Concessions
a) Graduated reduction in tension (GRIT) model is a method in which parties
avoid escalating conflict to reach mutual settlement within the bargaining zone
b) Do not fall for the “even-split” ploy
5. Timing of Concessions
a) The timing of concessions can be immediate, gradual, or delayed

IV. SUBSTANTIATION
A. Power Conversation Tactics

B. Constraints versus Disparagement

1. Constraint rationales refer to one’s own limited resources (e.g., “I can’t pay more”)
2. Disparagement rationales critique the negotiated object or service (e.g., “It’s not worth
more”)

C. Agreement versus Option

1. When labeling a proposal, using the word “agreement” rather than “option” positively
influences acceptance rates

D. Fairness Arguments
1. There are multiple methods of fair division:
a) Equality rule (blind justice)
b) Equity rule (proportionality of contributions principle)
c) Needs-based rule (welfare-based allocation)
2. Egocentrism affects judgements of fairness
a) Egocentric judgments of responsibility and fairness are attributable to the ways in
which people process information (see EXHIBITS 3-5 AND 3-6)
3. Relationships affect judgments of fairness

E. Social Comparison (see EXHIBIT 3-7)

F. The Equity Principle: people make judgments about what is fair based on what
they are investing in the relationship and what they are getting out of it
1. Restoring equity—when people sense inequity, they seek to restore it
2. Methods to eliminate tension arising from inequity:
a) Alter the inputs
b) Alter the outcomes
4
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

c) Cognitively distort inputs or outcomes

d) Leave the situation
e) Cognitively distort either the inputs or outcomes of an exchange partner
f) Change the object of comparison

V. FINAL OFFERS
A. Making a commitment such as a “final offer” should be done only when
you really mean it, and are prepared to walk away from the bargaining
table, otherwise you lose credibility and “face” with the counterparty

B. Face-Saving
1. Face is the value a person places in his or her public image, reputation, and status vis-à-
vis other people in the negotiation
a) People differ in terms of how sensitive they are to losing face
b) The best way to help the other party save face is to not indicate that you think he or
she has lost face

VI. CHAPTER CAPSTONE

A. When it comes to slicing the pie, the most valuable information is a
negotiator’s BATNA

B. Negotiators can enhance their ability to garner a favorable slice of the pie
by engaging in the following strategies:
1. Determine their BATNA prior to negotiations and attempt to improve upon it
2. Determine their reservation point
3. Research the counterparty’s BATNA
4. Set high aspirations
5. Make the first offer in cases of symmetric information; invite the other party to make the
first offer in cases of extreme asymmetry
6. Immediately reanchor if the counterparty opens with an “outrageous” offer
7. Plan their concessions, and support their offer with facts
8. Appeal to norms of fairness
9. Avoid falling for the “even split” ploy

C. Negotiators should not reveal their reservation price and never lie about
their BATNA

D. A negotiator who is well versed in the psychology of fairness is at a pie-

slicing advantage

5
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

KEY TERMS

anchor point A psychological sticking point, often a starting point, that sets an
important benchmark for other offers, both positive and negative
bargaining surplus The amount of overlap between parties’ reservation points
bilateral concessions Concessions made by both parties
Boulwarism A bargaining style named for Lemuel Boulware, former CEO of
General Electric, in which one’s first offer is one’s final offer
chilling effect When you ask for something outrageous and risk souring the
relationship
concessions Reductions that a negotiator makes during the course of a
negotiation
concession aversion Refers to the tendency for some negotiators to be disinclined to
make concessions
concession reciprocity Refers to the tendency of negotiators to reciprocate concessions
constraint rationales Refer to a negotiator’s limited resources
disparagement rationales Refer to a negotiator’s criticisms regarding an object or
surface
even split Evenly dividing the two offers currently on the negotiation table
face The value a person puts on his or her public image, reputation, and
status vis-à-vis other people in the negotiation
goal-setting paradox A negotiator who focuses on ideas and feels less satisfied than a
negotiator who focuses on their reservation point
GRIT model Unilateral conciliatory actions designed to de-escalate a conflict
mixed-motive negotiation A negotiation in which parties want to cooperate with their
opponent to reach mutual agreement, but must compete to
maximize their share of the joint gains
negotiation dance The process of making offers and counteroffers in a negotiation
negotiator’s surplus The positive difference between the settlement outcome and the
negotiator’s reservation point
pattern of concessions In negotiation, the sequence of consecutive concessions made by
parties
practitioner-researcher
paradox Refers to the fact that intuition and folklore advises negotiators to
never open first, whereas much scientific research argues that
negotiators should always open first due to a “first mover
advantage”
premature concessions Making more than one concession in a row before the
counterparty responds or counteroffers
prevention-focused Negotiators who conceptualize goals as obligations and necessities
promotion-focused Negotiators who conceptualize goals as ideas and opportunities
6
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

psychological equity When a person is denied the opportunity to restore equity, that
person will derogate others, thereby restoring psychological equity
suboptimal outcome In negotiation, an outcome in which negotiators leave money on
the table, reach an impasse, or are generally worse off not reaching
agreement than reaching agreement
substantiation Refers to the arguments or persuasive rationale that often
accompanies an offer
tandem anchoring account Argues that counterparties are influenced by both
endpoints of the range as they evaluate the proposer’s reservation
price as well as how polite they believe the extreme counter-offer
would be
unilateral concessions Concessions made by one party
winner’s curse A situation in which a negotiator makes an offer that is
immediately accepted by the opponent, thus signaling the fact that
the negotiator offered too much
zone of possible agreements The range between negotiators’ reservation points in a
negotiation

SUGGESTED EXERCISES AND OTHER MATERIALS

1. EXERCISE: All in the Family

by Joao Neves
All In The Family is a two-party exercise that illustrates the strengths and weaknesses of four
different procedures for distributing a set of ten items between two parties: 1) “Divide and
Choose” works off parties’ own priorities and estimates of the other party’s priorities and
encourages students to use and understand the maximization procedure, called Solver, in
Excel; 2) “Alternating Selection” illustrates first mover advantage effects; 3) “Bargaining”—
face to face or electronic—often leads to suboptimal agreements; and 4) “FOTE” (full, open,
and truthful exchange) illustrates the ways in which students can improve their outcome
over their bargained outcome. This exercise includes an Excel spreadsheet for students to
use to compare and contrast the different procedures, as well as teaching notes and a second
Excel spreadsheet for the instructor to use to post student results. Preparation: 10 min.
Negotiation: 30 min. Available from the Dispute Resolution Research Center (DRRC) at
the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

2. EXERCISE: The Biopharm-Seltek Negotiation

by Leonard Greenhalgh
Biopharm-Seltek is a distributive negotiation over the sale of a manufacturing facility that
produces genetically engineered compounds. Negotiators are given information about the
costs of their alternatives, but have to determine aspirations, reservation prices, and opening
offers themselves. There are no teaching notes; however, the teaching notes associated with
Coffee Contract (see Exercise 8 below) can easily be adapted for this exercise. Preparation:
10 min. Negotiation: 20 min. Available from the Dispute Resolution Research Center
(DRRC) at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.
7
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

3. EXERCISE: Blue Buggy Buyer

by Gaylen D. Paulson
This is a two-party deal-making exercise with a negative bargaining zone. Nevertheless,
15%–20% of negotiators reach agreement illustrating irrationality and agreement biases.
Another 15%–20% generate creative agreements that illustrate the limitations of the frames
and assumptions negotiators bring to the table. Preparation: 10 min. Negotiation: 15
min. Available from the DRRC at the Kellogg School of Management, Northwestern
University; www.new.negotiationexercises.com.

4. EXERCISE: Bullard Houses

by Ron Karp; revised by Mox Tan, David Gold, Andrew Clarkson, Paul Cramer, Douglas
Stone, and Bruce M. Patton
DRRC’s version of this Harvard University Program on Negotiation (PON) exercise is
excellent for raising issues of ethics in negotiation. It is a one-on-one, qualitative negotiation
between agents over a piece of prime real estate. It emphasizes the role of agents, lying,
misrepresentation, and trust. Preparation: 60 min. Negotiation: 60 min. Available from
the DRRC at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

5. EXERCISE: Buying a House

by Sally Blount
Buying a House is a two-party, quantified, distributive negotiation with a $10,000
overlapping bargaining range. It can be used to teach pure distributive negotiations and the
use of comparative standards. Preparation: 15 min. Negotiation: 20 min. Available from
the DRRC at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

6. EXERCISE: Celtic Luck

by Joao Neves
Celtic Luck is a simple yet puzzling exercise based on Professor Howard Raiffa’s example of
offering one ticket to a basketball game to each of his two best students, only to find out that
they had already made previous arrangements with their respective significant others. The
exercise is designed to introduce fundamental negotiation concepts, especially the creation of
alternatives. Two uncommon and challenging features are the fact that the exercise involves
simultaneous buy and sell propositions and that the tickets seem to be worth either a lot or
nothing. Celtic Luck can be used in large settings (as in an auditorium) or in small classes.
Extensive ideas for debriefing are provided. Preparation: 5–10 min. Negotiation: 10–15
min. Available from the DRRC at the Kellogg School of Management, Northwestern
University; www.new.negotiationexercises.com.

7. EXERCISE: Club West

by Craig R. Fox & Alan C. Fox; adapted by Stephen B. Goldberg, and Jeanne M. Brett
Club West is a lawsuit. It illustrates setting reservation prices in legal disputes, egocentric
bias and reactive devaluation. Preparation: 30–60 min. Negotiation: 30 min. Available
from the DRRC at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

8. EXERCISE: Coffee Contract

by Tony Simons and Thomas Tripp
This distributive exercise concerns the contract for coffee at the Cornell Hotel School. It
provides a good context for teaching fundamental negotiation concepts like bargaining zone,
8
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

reservation prices, and BATNAs, as well as distributive negotiation tactics, openings,

concession making, and threats. Creative students may build in some integrative elements,
and even if the students fail to find these creative ideas, the instructor can use them to
introduce integrative negotiations. Preparation: 15 min. Negotiation: 30 min. Available
from the DRRC at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

9. EXERCISE: Energetics Meets Generex

by W. Trexler Proffitt, Jr.
This is a two-party distributive negotiation based on a real California wind energy farm
transaction in 2002. It is good for illustrating biases including anchoring and availability. It
includes the option to provide an outside offer during the negotiation, which illustrates the
power of BATNA. Preparation: 10 min. Negotiation: 30 min. Available from the DRRC at
the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

10. EXERCISE: Fastskin

by Holly Schroth
Fastskin is a multi-person (7–10), multi-issue (3) negotiation with both integrative and
distributive elements. It is based on a real situation associated with the introduction of
Speedo’s Fastskin technology that was associated with many new World swimming records
in 2008. It illustrates power, politics, coalition building, and agency issues in the context of
an intra-organizational negotiation. It provides for “shadow” negotiations (that occur away
from the table prior to an “official” negotiation), for understanding how parties not directly
involved at the table can influence negotiations, a discussion of ethics and dispute resolution
strategy, and potentially how phone or email may affect negotiations. Preparation: Outside
of class Negotiation: Part 1: up to 120 min., Part 2: 25 min., Part 3: 30 min. Available from
the Negotiation & Team Resources Institute at
https://www.negotiationandteamresources.com/product/fastskin/

11. EXERCISE: GI-Fix

by Max H. Bazerman
GI-Fix is a two-party distributive negotiation between the head of a pharmacy for an HMO
and the sales representative of a pharmaceutical company over the price and volume of a
drug. Preparation: 30 min. Negotiation: 30–45 min. Available from the DRRC at the
Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

12. EXERCISE: Hollywood

by Holly A. Schroth, Clarence Chen, Edward Sieh, and Patricia Yu
Hollywood is an exercise designed to illustrate the role of agents in negotiation. It has two
parts: a negotiation between each principal and his/her agent; and a negotiation between
agents. The exercise is primarily distributive over salary, but there an opportunity to add
issues to the table. Preparation: 15–20 min. Negotiation: 45 min. Available from the
Negotiation & Team Resources Institute at
https://www.negotiationandteamresources.com/product/hollywood/

13. EXERCISE: MAPO

9
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

by Mark N. Gordon, Tim Reiser, Elizabeth Gray, Lynn Gerber, Bruce M. Patton, and
Valerie A. Sanchez
DRRC’s version of this Harvard University Program on Negotiation (PON) case is a multi-
issue union management contract negotiation, with integrative potential. It comes with
numerous exhibits that provide an opportunity to discuss using fairness standards while
negotiating distributive agreements. Preparation: 60 min. Negotiation: 120 min.
Available from the DRRC at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

14. EXERCISE: Non-Profit Conflict

by Cabin Kim

Non-Profit Conflict is a two-party exercise with integrative potential if the parties share
information about their interests rather than sticking to their positions. Two parties are
vying over a piece of property. Non-Profit Conflict can be used to teach the difference
between fixed and variable pie negotiations, between positions and interests. It illustrates
what information to share, and under what circumstances to achieve an integrative
agreement. Preparation: 15 min. Negotiation: 10 min. Available from the DRRC at the
Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.

15. EXERCISE: Solaris

by Georg Berkel

Solaris is a two-party, single issue, distributive negotiation exercise. It is based on publicly

available information about the 2009 acquisition of a small solar energy company by a very
large company that basically wanted Solaris for it patents. It is a very good introductory
exercise for teaching about BATNAs and RPs, but also how to set targets. It can also be used
to discuss alternative strategies for distributive negotiation like, take it or leave it, the Fisher
and Ury’s objective standards, and anchoring and bargaining. Preparation: 15 min.
Negotiation: 30 min. Available from the DRRC at the Kellogg School of Management,
Northwestern University; www.new.negotiationexercises.com.

16. EXERCISE: Sugar Bowl

by Gaylen D. Paulson
Sugar Bowl is a fun and compact introductory exercise originally designed for use in short
negotiation seminars or workshops. The exercise presents a very approachable negotiating
context, and one that persons are likely to feel is relevant to their own experiences. The key
to the exercise is a relatively generous positive bargaining zone that often leaves both sides
initially feeling successful, but later realizing they might have gotten a better distributive
outcome (and thereby making them more receptive to course material). In a very short space
of time, issues are raised related to aspirations, reservation prices, alternatives, bargaining
zones, and tactics for effective value claiming. Preparation: 5 min. Negotiation: 5–10
min. Debrief: 15–20 min. Available from the DRRC at the Kellogg School of Management,
Northwestern University; www.new.negotiationexercises.com.

17. EXERCISE: Virtual Victorian

by Wendi Adair, Gaylen D. Paulson, and W. Trexler Proffitt, Jr.
Virtual Victorian is a distributive, house buying negotiation that is carried out through
agents via email. There are four parties: the buyer, the buyer's agent, the seller, and the
seller's agent. Preparation: 60 min. Negotiation: 1 week (email). Available from the
DRRC at the Kellogg School of Management, Northwestern University;
www.new.negotiationexercises.com.
10
Copyright © 2020 Pearson Education, Inc. All Rights Reserved
 Chapter 3: Distributive Negotiation: Claiming Value

18. EXERCISE: Yerba Mate

by Holly Schroth
Yerba Mate is a two-party negotiation based on two real companies that is designed
primarily to teach distributive negotiation skills but has some integrative potential if both
sides share their interests. It is an introductory exercise that helps participants understand
the importance of planning and preparation, as well as making first offers, understanding
anchoring, identifying and using one’s BATNA, making principled concessions, and setting
resistance and aspirations points. This exercise is best used at the beginning of a negotiation
course or in a training workshop. Preparation: 5 min. Negotiation: 15–20 min. Available
from the Negotiation & Team Resources Institute at
https://www.negotiationandteamresources.com/product/yerba-mate/

11
Copyright © 2020 Pearson Education, Inc. All Rights Reserved