Bargaining stances and outcomes in buyer-seller negotiations: experimental results.
Buyer-supplier relationships are affected by contractual negotiations between the respective parties (Dwyer, Schurr and Oh 1987). Negotiation has been addressed in the literature from many different angles, including the psychological approach (e.g., Oliver, Balakrishnan and Barry 1994; Barry and Oliver 1996; Brenner, Koehler, Liberman and Tversky 1996; Tversky and Kahneman 1981), the economic approach (e.g., Nash 1950, 1953; Tversky and Kahneman 1991), collective negotiations (e.g., Walton and McKersie 1965) and international negotiations (e.g., Graham 1985; Graham and Sano 1986; Graham, Kim, Lin and Robinson 1988; Graham, Mintu and Rodgers 1994; Adler, Brahm and Graham 1987; Adler, Graham and Gehrke 1992). However, despite much work in the field of negotiation, relatively little is known about what determines negotiation outcomes (Van Poucke and Buelens 2002).
Many papers in the negotiation field rely on experimental research, which allows researchers to control for a number of variables that would otherwise interfere with the tested relationships. This obvious advantage also allows researchers to interpret the relative importance of the tested variables with more accuracy. On the other hand, controlling for too many variables removes some of the richness, or the details, of the environment surrounding a negotiation and hampers the ability of researchers to generalize results.
Most of the literature on two-party negotiations has focused on identifying the variables that influence the outcomes of a negotiation, including reference points, anchor points, opening offers and the attitudes of the negotiators. However, despite using controlled experimentation, researchers have reported conflicting results over the relative importance of reference points. For instance, some studies have found support for the importance of reservation prices (White, Valley, Bazerman, Neale and Peck 1994; Kristensen and Garling 1997a), whereas others (Min, LaTour and Jones 1995; Van Poucke and Buelens 2002) have reported that the only relevant reference point is the opening offer. Similarly, there are conflicting results regarding whether buyers tend to outperform sellers or vice versa (Neale, Huber and Northcraft 1987; Lim 1997; Van Poucke and Buelens 2002).
Do the bargaining stances of the respective parties affect the outcome of the negotiated settlement? Do the bargaining stances affect the way negotiators choose their reference points? Is it possible to measure the effect of bargaining stances on the outcome of a single negotiation? This research aims to study the variables likely to influence the outcome of a two-party negotiation in an experiment that reproduces some of the richness encountered in real-life negotiations. Two-party negotiations were conducted using university students. This paper analyzes the effect of reservation prices, aspiration prices and competitive stances on the outcomes of a two-party negotiation. Further, the results of this study are compared with previous studies and, finally, managerial implications are provided.
The negotiation literature has focused on analyzing the influence of different reference points. Reference points are the significant data points that negotiators refer to during a negotiation based on research on market conditions, labor and material costs, and so on (Kahneman 1992). Four types of reference points have received particular attention in the literature: aspiration price, reservation price, opening price and market information. The current research focuses primarily on two reference points: aspiration price and reservation price. Because the terms and definitions vary somewhat across the negotiation literature, Table I provides a glossary and a synthesis of the definitions most commonly used in the field.
The literature on reference points is largely experimental and minimal research has been done to determine how reference points can help assist in explaining the outcomes of negotiations in the professional supply environment. On the other hand, the purchasing and supply literature tends to have a "macro" outlook and scant research has been done to evaluate how firms' strategies and types of production (e.g., JIT) translate in terms of negotiation tactics.
Although the literature emphasizes the importance of reference points for negotiators for reaching an agreement, it provides conflicting findings regarding the relative importance of the following three reference points: reservation price, market price and aspiration price. Thus, these reference points are reviewed next in the paper.
Reservation price refers to the price that is least acceptable to a party in a negotiation (Blount, Thomas-Hunt and Neale 1996). From a buyer's perspective, the reservation price represents the price at which they will be indifferent about buying a good from a particular supplier or "walking away" from the negotiation. At this point, the buyer is likely to consider dealing with competing suppliers, based on the BATNA: Best Alternative To a Negotiated Agreement (Fisher and Ury 1981). For example, a buyer's BATNA could be the price of a similar product from a different supplier. From a seller's or supplier's perspective, the reservation price represents the lowest acceptable selling price--the price at which the seller will walk away from the negotiation. Many factors may affect the lowest acceptable selling price. For example, a supplier might consider selling at a price below cost to keep workers employed in the short term. Thus, a supplier's reservation price may be difficult for the buyer to determine.
Contradictory results have been reported regarding the importance of reservation price in determining the settlement price of a negotiation. For example, White et al. (1994) reported that reservation prices are the only relevant reference point that influence the settlement price (Kristensen and Garling 1997a). In contrast, Min et al. (1995) and Van Poucke and Buelens (2002) reported that reservation price is not relevant and that the only significant variable is the initial offer.
Directly related to reservation price is the concept of the bargaining zone. The bargaining zone incorporates the buyer's and seller's respective reservation prices (Walton and McKersie 1965; Raiffa 1982; White et al. 1994). The bargaining zone is defined as the region between the buyer's and seller's reservation prices, and is the region in which the settlement price is most likely to take place (Raiffa 1982). In the case of a positive bargaining zone, as shown in Figure 1, the overlapping area represents the surplus to be shared between the two negotiators (Neale and Bazerman 1991). When the bargaining zone is negative, as shown in Figure 2, the buyer's reservation price is lower than the seller's reservation price. In this situation, the likelihood of an impasse is high because there is no apparent common ground for agreement between the two negotiators.
Nash (1950) established the idea that under distributive bargaining conditions, where each party attempts to maximize their own interests in the negotiation (Pruitt 1983), and with both parties knowing each other's preferences, rational behavior by negotiators would lead them to equally share the gains of negotiation. Hence, the settlement of a negotiation should logically take place at the so-called "Nash equilibrium," that is, the mid-point between the buyer's and seller's reservation prices, as shown in Figure 1. Researchers have reported mixed results regarding the consistency of negotiated outcomes with the Nash equilibrium. For example, White et al. (1994) found support for the Nash equilibrium, but other research efforts (e.g., Neale and Bazerman 1991, 1992) did not find support.
Negotiators generally rely on private and public information as two fundamental types of information resources. Private information represents the information available to the negotiator from inside the firm, such as cost data or profit margins. Public information is information available to the negotiator outside of the firm, including market price, and has various origins, including professional publications, annual reports, word-of-mouth and the Internet.
The concept of market price is rooted in the field of economics and represents the market clearing price (Blount et al. 1996). In a market with many buyers and sellers and where transactions are conducted in an anonymous manner, the market clearing price represents the average price that maximizes social welfare (White et al. 1994). However, in individual transactions, it is more appropriate to define market price as the "average price for which comparable goods have recently sold" (White et al. 1994). Thus, market price represents a benchmark that both parties may use to evaluate the fairness of a settlement and is likely to serve as a strong reference point in the negotiation (White et al. 1994).
Researchers have reported conflicting results regarding the importance of market price as a reference point. White et al. (1994) suggested that market information has no influence on the settlement of a negotiation. On the other hand, Blount et al. (1996) determined that market price is significantly related to the settlement price. One possible explanation for these conflicting results may reside in the level of confidence negotiators place on the market price and on the source of that information.
The aspiration price represents the best settlement a buyer or a seller can expect to achieve (Walton and McKersie 1965). Kristensen and Garling (1997a) proposed that a buyer's aspiration price reflects the estimate of the seller's reservation price. Because the seller's reservation price is typically a well-kept secret, buyers may have to research the market and develop an estimate of the supplier's cost structure to establish the aspiration price. Previous research has shown that negotiators generally tend to simplify the information available to them and focus on only one particular reference point (White et al. 1994). Moreover, it has been suggested that aspiration price may be affected by the opening offer or by information regarding the market price (Kristensen and Garling 1997b).
[FIGURE 1 OMITTED]
White and Neale (1994) showed that aspiration price has an influence on the settlement price, even when controlling for bargaining zone size, and argued that negotiators often think in terms of ranges rather than a specific point estimate. This introduces the notion of an aspiration zone as shown in Figures 1 and 2. Thus, the aspiration zone is the distance between a party's aspiration price and reservation price (White and Neale 1994). A large aspiration zone may imply that a negotiator will make a more aggressive opening offer but at the same time has more room for making concessions later in the negotiation (White and Neale 1994). As a consequence, the size of the aspiration zone may influence the probability of an impasse.
[FIGURE 2 OMITTED]
White and Neale (1994) demonstrated that when two negotiators have similar aspiration zones, in terms of size, the likelihood of an impasse is lower than when the size of their aspiration zones are significantly different. This result may be explained by the fact that a larger aspiration zone allows a party to be more flexible in giving concessions.
The literature reports two primary stances by negotiators: distributive and integrative (Walton and McKersie 1965; Lewicki, Saunders and Minton 2001). Distributive negotiation, also called competitive or win-lose bargaining, refers to a negotiation stance in which the party, or parties, views resources as fixed and thus attempts to maximize their own share at the expense of the other. Fisher and Ury (1981) refer to this bargaining stance as "positional bargaining," whereas Pruitt (1983) introduced the term "contending" or "contentious bargaining." Distributive bargaining implies an effort to dominate the negotiation through the use of pressure tactics, persuasive arguments and threats (Pruitt 1983).
Integrative bargaining, also called cooperative, collaborative, win-win or problem solving bargaining (Pruitt 1981; Graham 1986), refers to a negotiating stance where one party's gain does not necessarily come at the expense of the other and where mutual benefit might accrue to both parties when they work to find mutually acceptable solutions (Lewicki et al. 2001). Graham (1986) proposed that an integrative bargaining stance in an industrial setting involves an "act of balancing" between a firm's own profits and the satisfaction of their customer firm, but works only when both firms use this approach. Table II summarizes the characteristics of integrative and distributive bargaining stances, adapted from work by Lewicki et al. (2001).
Negotiations between a buyer and a seller may appear to be a zero-sum game because each dollar of overall value that one party gains is one lost by the other party. This situation is particularly true for a one-time negotiation with a supplier for a nonrepetitive purchase. As a consequence, a one-time negotiation may increase the likelihood of both negotiators adopting a distributive strategy because they have little expectation for future interaction. One example is a nonrepetitive purchase such as hiring a construction firm to replace a roof on an office building. On the other hand, the prospect of repeated purchases with the same party may increase the likelihood for both parties to adopt a more integrative style. Repetitive bargaining offers both parties a chance to share information and to identify a position that will benefit both parties. However, even under conditions of repetitive bargaining, many negotiators assume that integrative solutions are not possible. This position is called the "fixed-sum assumption" (Thompson and Hastie 1990; Simons 1993). Almost by definition, the bargaining stances taken by the respective parties may affect the tactics used by negotiators, which in turn may affect the settlement. Much of the experimental research in negotiation assumes that both parties use a distributive bargaining stance (White et al. 1994; Kristensen and Garling 1997a).
The first set of hypotheses proposes relationships between the independent variables of buyers' and sellers' reservation and aspiration prices, and the dependent variable of the settlement price. As noted previously, reservation prices are the least acceptable outcome for each of the respective parties and because disclosing these figures would negatively affect the disclosing party, reservation prices are thus private information (Blount et al. 1996). In contrast, the aspiration price is much less private and may be shared explicitly with the other party in the form of opening offers, and can thus be considered public information. For example, a buyer may provide an aspiration price as the opening counter-offer to a seller's initial offer.
The reasoning behind these hypotheses is that aspiration and reservation prices should logically reflect how the negotiators are approaching the negotiation. For example, a very high aspiration price by a seller would imply that they may be quite optimistic about their position in the negotiation and may feel as if they hold a position of power. Conversely, when a buyer sets a relatively high aspiration price, it may reflect the idea that the buyer believes they lack power in the negotiation, or that they are willing to compromise. Similar reasoning applies to reservation prices. Thus, the underlying theory behind these hypotheses is that reservation and aspiration prices are reference points that are established by the respective parties and which manifest, indirectly, the motives and relative positions of power the parties believe they hold. Stated another way, reference points are a manifestation of the negotiators' perceptions, goals and expectations for the negotiation.
H1a: There is a direct and positive relationship between the buyer's reservation price and the negotiation settlement.
H1b: There is a direct and positive relationship between the seller's reservation price and the negotiation settlement.
H1c: There is a direct and positive relationship between the buyer's aspiration price and the negotiation settlement.
H1d: There is a direct and positive relationship between the seller's aspiration price and the negotiation settlement.
The second set of hypotheses tests whether the bargaining stances taken by the buyer and the seller moderate the relationship between the buyer's and seller's reservation and aspiration prices, and the settlement price. As discussed earlier and shown in Table II, bargaining stances are either integrative or distributive. An integrative bargaining stance is characterized by a problem-solving approach, more openness to concessions and some attempt to understand and accommodate the other party's needs. In contrast, a distributive stance is characterized by a short-term orientation, and hard bargaining aimed at taking the most away from the other party in the negotiation. For example, in a distributive-distributive context, both parties would be expected to emphasize their aspiration prices, that is, each party would aggressively strive to reach their best price at the expense of the other party. In contrast, in a negotiation where both parties assume an integrative posture, the negotiation might be characterized by more concessions and a willingness by both parties to not be so driven to achieve their aspiration prices. In a mixed situation where one party takes a distributive approach and the other party takes an integrative approach, results might be mixed and dependent upon the availability of a BATNA for each of the parties. The following hypotheses do not test this level of detail. However, they do test whether the bargaining stance affects the relationship between the parties' reference points and the settlement price. In other words, hypotheses H2a-d test whether the presence of bargaining stances in the negotiating parties makes the relationships postulated in H1a-d stronger.
H2a: The initial bargaining stance taken by the buyer and the seller moderates the relationship between the buyer's reservation price and the settlement price.
H2b: The initial bargaining stance taken by the buyer and the seller moderates the relationship between the buyer's aspiration price and the settlement price.
H2c: The initial bargaining stance taken by the buyer and the seller moderates the relationship between the seller's reservation price and the settlement price.
H2d: The initial bargaining stance taken by the buyer and the seller moderates the relationship between the seller's aspiration price and the settlement price.
Next, this study attempted to identify the factors that contribute to a negotiation impasse. In the experimental setting in this study, two factors could be responsible for an impasse. First, a lack of common ground between the buyer and the seller could lead to irreconcilable positions. Second, the bargaining stance taken by negotiators could affect the rate at which concessions were made.
The bargaining zone is said to be positive when the buyer's reservation price is higher than the seller's reservation price, as shown in Figure 1. However, with a negative bargaining zone, as shown in Figure 2, there is no common ground for agreement between the buyer and the seller. A negotiation taking place under the conditions in Figure 2 may be quickly abandoned (Raiffa 1982; Lewicki et al. 2001) unless one or both parties revise their reservation price. Hypothesis 3 tests this relationship as follows:
H3: A negotiation with a negative bargaining zone has a higher likelihood of impasse, where the negotiation is abandoned, than one with a positive bargaining zone.
METHODOLOGY AND DATA ANALYSIS
The data in this study were collected from upper-level, primarily seniors, undergraduate students who were studying negotiation in a purchasing course at a large public university in the United States. The students had received approximately 3 weeks of interactive lectures exclusively on the topic of negotiation. Topics included problem framing, negotiation strategies, integrative and distributive negotiation stances, goal setting and other related negotiation topics. A large majority of these students had real-world work experience, typically in the form of summer internships in some area of supply chain management, and a minority had some industrial negotiation experience. The students were randomly assigned to teams of three or four people, and the teams were randomly assigned as either buyers or sellers. This assignment yielded 128 teams. The teams were provided with a buyer or seller negotiation scenario as shown in Appendices I and II.
Before the negotiation started, the teams were given time to review their respective negotiation scenarios and to discuss how they would approach the negotiation. They were then asked to state which bargaining stance they planned to pursue, either integrative or distributive, and also to declare their reservation prices and target prices. The teams were given approximately 60 minutes to complete the negotiations. Impasses were allowed, that is, teams were not forced to reach a negotiated agreement. Grades were assigned only for participation in the negotiation so as not to influence the outcomes of the negotiation in a particular direction.
Data Analysis and Results
Table III provides the regression results for H1a-d. The regression tested the direct influence of four reference points on settlement price. The reference points analyzed included the buyer's reservation and aspiration prices, and the seller's reservation and aspiration prices. The results of the multiple regression suggest that only two of these reference points are statistically significant: the seller's aspiration price (p < .01) and to a lesser extent buyer's reservation price (p < .1). These results provide support for hypotheses H1a and c and do not support hypotheses H1b and d.
The next step was to analyze the moderating effect of the negotiation stances taken by two parties. The negotiation stance taken by the buyer and the seller was either integrative or distributive. Following a game-theoretic framework, four combinations are possible: distributive-distributive (DD), distributive-integrative (DI), integrativ-distributive (ID) and integrative-integrative (II). These combinations were grouped into three categories: (1) Integrative-integrative (II), (2) integrative-distributive and distributive-integrative (ID-DI), and (3) distributive-distributive (DD). These three categories were coded using two dummy variables, NS1 (difference between DD and II) and NS2 (difference between the ID and DI combined group and the II group) with II as the reference group. The information was assumed to be symmetrical, that is, both groups had similar, although not identical information. Thus, for the analysis the ID and DI groups were incorporated into the same group after preliminary analysis suggested that ID and DI subgroups were not significantly different. All the independent variables were mean centered to reduce unnecessary multicollinearity. Mean centering is accomplished by subtracting the mean of a given predictor variable from each related observation (Aiken and West 1996; Jaccard and Wan 1996; Cohen, Cohen, West and Aiken 2003).
The results, shown in Table IV, indicate that NS1, the dummy variable coding the difference between the DD and II, is statistically significant for each of the four different independent variables tested. This result suggests that distributive-distributive (DD) stances significantly alter the settlement price compared with integrative-integrative (II) stances and that this alteration increases the settlement price. Thus, a DD stance tends to increase the settlement price and, therefore, improves the seller's performance in terms of the settlement price.
The moderating effect of the bargaining stance was not found to be significant except in the relationship between seller's aspiration price and settlement price (p < 0.05) and to a lesser extent in the relationship between buyer's aspiration price and settlement price (p < 0.1). These results provide support for hypothesis H2d, marginal support for H2b but no support for hypotheses H2a and c. For the seller's aspiration price, the interaction term representing the moderating effect of a DD bargaining stance compared with an II bargaining stance was significant (p < 0.05). Therefore, the more distributive the bargaining stance taken by the negotiating parties, the higher the level of the increase of the settlement price associated with the bargaining stance. This result confirms the importance of bargaining stance on the outcome of a negotiation.
Testing Hypothesis 3 consisted of analyzing the effect of the size of the bargaining zone on the likelihood of the negotiators reaching a settlement. This analysis was performed to determine whether a negative bargaining zone has a higher likelihood of not reaching a settlement when compared with a positive bargaining zone. Results reveal that out of 10 negotiations with a negative bargaining zone, three did not reach settlement. In contrast, out of 53 negotiations with a positive bargaining zone, only three were unsuccessful in reaching an agreement. To analyze the frequency table, the Fisher exact test was used, which is a statistical tool used to identify a nonrandom association between two categorical variables. The Fisher test calculates the p-value for a 2 x 2 frequency table for small sample sizes where a [chi square] test is inappropriate. This analysis resulted in a p-value of 0.0458 (p < 0.05). Thus, the results of the Fisher exact test support the notion that negotiations have a statistically significant higher likelihood of reaching a settlement with a positive bargaining zone than with a negative one. This result provides support for Hypothesis 3.
The experiment used in this study attempted to reproduce the richness of a real negotiation by providing enough background to negotiators such that they could clearly understand and identify with their respective roles. For example, negotiators were provided with market price references and personal constraints from which aspiration and reservation prices could be easily extracted. Negotiators were asked to choose a bargaining stance, either distributive or integrative, at the beginning of the negotiation.
Despite a rich environment with multiple reference points and in a relatively uncontrolled environment when compared with similar studies in the negotiation literature, some definite predictors of price settlements were identified. In this experiment, both seller's aspiration price and buyer's reservation price were significant predictors of the settlement price. Hypothesis H1a and d stipulated significant relationships between the independent variables of buyer's reservation and seller's aspiration prices, and the dependent variable of settlement price, and were supported. Hypotheses H1b and c were not supported.
Although both parties had predetermined goals in terms of aspiration prices, the results of the analysis suggest a balance of power in favor of the seller. Buyer teams appear to have retreated from their aspiration points, and to focus more on their reservation prices. Conversely, sellers appear to have kept aspiration price as an anchor point during the negotiation. This result is consistent with previous research (Raiffa 1982; Kristensen and Garling 1997a), which suggests that negotiators may adjust their expectations during the negotiation. This result is reinforced by the average selling price of $1,229, which is higher than the price predicted by the Nash equilibrium ($1,159), which suggests that sellers took a higher share of the available welfare and generally dominated the negotiation. It is also possible that the wording of the scenario implicitly gave sellers more power than the buyers, possibly because of the time pressure imposed on the buyer. However, in feedback sessions only a small minority of the negotiator groups reported feeling pressed for time. Moreover, regardless of the facts of a particular negotiation scenario, it is the negotiators' perceptions and interpretation of those facts that influence the behavior of the parties during the negotiation.
The test of the second set of hypotheses, which examined the effect of the negotiators' bargaining stances on the settlement of a negotiation, also received mixed results. Before determining the presence of possible interaction effects, the data were examined to identify the main effect of various negotiation stances. The results, shown in Table IV, suggest that a DD bargaining stance consistently increased the settlement price, which indicates an advantage to the seller. The analysis of the dummy variable used to measure the difference between an II and a DD stance (NS1), indicated that NS1 was positive and significant, and ranged from $48 to $82. However, there were no similar significant differences in the negotiations where the two groups were mixed (DI or ID). Thus, the seller groups appear to have benefited from adopting a distributive bargaining stance. The results also imply that when both parties adopt a distributive stance, the party with the highest negotiation power may be able to manipulate the settlement price. If true, this interpretation would give an incentive for a powerful negotiator to adopt a distributive stance in order to leverage power and improve performance, at least in the short run and when unit price is the primary decision criterion.
Second, the analysis of possible interaction effects of bargaining stances provided only limited support for hypotheses H2a-d. Specifically, a DD bargaining stance was found to be a significant moderator in the relationship between the sellers' aspiration price and settlement price whereas DD was only marginally significant (p < 0.1) in the relationship between the buyers' aspiration and settlement price. Thus, support was found for H2d (p < 0.05) and more moderately for H2b (p < 0.1), but not for H2a or c. It is interesting to note that these interaction effects were identified only for aspiration prices (for both buyer and sellers) and not for reservation prices. This result implies that a DD bargaining stance exaggerates the importance of a bargainer's aspiration price, assuming no regard for any considerations of the opposite party.
An additional finding is that the likelihood of success or impasse may be predicted by determining the sign of the bargaining zone, positive or negative, rather than by determining the bargaining stance taken by each negotiator. For this particular data set, bargaining stance is not relevant in determining the aspiration zone. However, even the sign of the bargaining zone should not be taken as a reliable predictor of a negotiation success. Of the 10 negotiations with a negative bargaining zone, none of the negotiations should, theoretically, have been successful because there was no common ground for agreement on settlement price between the two parties. However, seven of the 10 negotiations with an initial negative bargaining zone actually did culminate in an agreement. This result confirms the fact that negotiators may change their reference points during a negotiation and also that they may be willing to shift their reservation prices in order to reach an agreement with the other party. Thus, as noted earlier, some information may be known before a negotiation, such as the seller's initial quote or asking price. However, despite preparations and strategizing for the negotiation, there is still information that will only emerge during the negotiation, and this new information may influence the negotiators to rethink their reference points.
For negotiators, this study suggests several important points. First, these findings reinforce the fact that reference points that are determined before the negotiation can influence the outcome of a negotiation. This finding reinforces a frequently stated assumption in the negotiation trade literature that negotiation success is dependent on significant effort in the preparation stage.
Second, the results point to the fact that negotiators may change their reference points during the negotiation. Knowing that negotiators do change their reference points emphasizes even more the need for thorough prenegotiation preparation. Moreover, preparation should not only focus on the determination of reference points but should also determine the courses of action to follow based on different case scenarios. For example, a buyer may not know whether the seller's negotiation team will come to the negotiation with a distributive or an integrative strategy. Thus, they should be prepared to respond to either one.
Third, armed with the knowledge that negotiators are likely to switch the reference points during the negotiation, negotiators must be ready to use strategies that will influence the other party to change their reference points. Thus, for instance, a negotiator could attempt to change another party's perceptions by using a more extreme opening offer as a way to modify the other party's perception of their own aspiration and reservation prices.
Finally, because negotiators are likely to switch reference points and strategies during the course of the negotiation, the results suggest that even after the most thorough preparation negotiators will be confronted with unforeseen events. In other words, even the best-prepared negotiators may have to readjust their position during the negotiation and without time to prepare. Under these conditions, it appears that a negotiator's experience and skill can potentially have a high impact on the success of a negotiation.
LIMITATIONS AND FUTURE RESEARCH
There are a few limitations to the current study. First, the sample size was relatively small with 128 negotiating teams. Second, the experimental design did not test multiple scenarios. For instance, future research could involve the manipulation of reference points to determine the effect on outcomes. Because of the fixed scenario, no analysis was possible for the market reference points.
Generalizability of results is always of concern in research, and this study is no exception. As noted earlier, the subjects of this experiment were upper-level undergraduate students who were taking a negotiation course at a large public university. One question of interest from the perspective of generalizability is: to what extent does the use of students as subjects in an experiment affect the generalizability of results to the general population of industrial negotiators in buyer-supplier negotiations? The extant research provides some useful perspective in this regard. Neale and Northcraft (1986) explicitly investigated whether the results of negotiation research, which gathered data from student subjects, were generalizable to the population of expert negotiators. Their results suggest that experts did outperform the students in similar situations, but that the patterns of performance were very similar. An additional negotiation study by Min et al. (1995) gathered data from both student and professional buyer groups. Min et al. (1995) reported "essentially the same" results in comparisons between the two groups (p. 21). Other researchers have also used students as subjects in negotiation research (e.g., Blount et al. 1996). These results suggest that the results of the present study are valid in terms of using students as a respondent population in a negotiation experiment. Replication and extensions of the present research could make valuable contributions to the field and provide additional evidence of generalizability.
Future research could also investigate whether bargaining tactics are valid representations of a firm's strategic approach to buyer-supplier relationships. In other words, researchers could seek to determine whether there is congruence between what the literature refers to as cooperative and competitive relationships, and the integrative versus distributive tactics used during negotiations. Another interesting question surrounds the issue of how bargaining stances might change during a negotiation, and why. Overall, the negotiation literature has done little to advance the understanding of bargaining stances on the outcomes of negotiation. We hope that other researchers will contribute to this area.
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NEGOTIATION SCENARIO (CONDENSED): SELLER'S VERSION
You want to sell your 1989 model pickup truck. You have just finished figuring your income taxes, and need an additional $1,000 soon. The only quick source of cash is to sell your vehicle. The average local trade-in value for a clean, low-mileage 1989 pickup is shown in the latest Blue Book as $1,400. You have taken excellent care of the truck, with regularly scheduled maintenance and oil changes; however, the tires have only a couple of 1,000 miles left on them. The actual mileage is 127,000, although the truck's odometer shows only 86,000. You have maintained the body by touching up the paint and waxing it frequently, but the right front fender was dented last week--it remains dented.
You have had a "For Sale" sign posted in the truck's back window and have had it advertised for sale for the last 2 weeks. A neighbor has been the only seriously interested party. After letting your neighbor test-drive the truck, you decide to try and negotiate a sale for the highest price you can get.
With summer coming on, you have been looking for a riding lawn mower. You have heard that the neighbor who test-drove the truck just purchased a new one and wonder what happened to the old one in his garage. You had planned to spend around several hundred dollars for a decent one. You have less than 1 h to reach a negotiated agreement.
Note: This scenario is similar to the one presented in Monczka, Trent and Handfield (2002, p. 751).
NEGOTIATION SCENARIO (CONDENSED): BUYER'S VERSION
Sears has just delivered your new riding lawn mower, and you were wondering how you will get rid of the old one, particularly since it has a broken drive shaft.
Your spouse just took your only car for the day to visit your ailing mother-in-law. You must commute 30 miles to work, and no public transportation or taxi service is available. You have been planning to buy a new full-size US-built pickup truck for some time now. You must leave for work in a half-hour or risk being late for your annual job appraisal with your manager.
A week ago you noticed a neighbor's pickup truck with a "For Sale" sign in the back window. You have about $2,000 in cash from your latest bonus check, but you must keep between $500 and $750 for living expenses. Other savings you have are committed to paying your Federal income taxes, which are due in a month.
The compact pickup for sale is a 1989 model Toyota with 86,000 miles showing on the odometer and a bald set of tires. The shocks are mushy, and the right front fender has been recently smashed. You have driven this pickup, and the engine and transmission seem to be in acceptable working condition. The brakes seem solid, and the steering is tight, but the muffler is getting loud.
If you buy the truck today, you will not be late for your annual performance appraisal (which, you hope, will include a raise). You recall that similar used pickups that are barely drivable sell for around $800-$900 at the local auto auction yard.
If you get to work 5 min early, you figure it could be worth an additional $500 per year since you will have time to review your preparation for the appraisal meeting and negotiate a better raise. You assume your neighbor will not lend you the pickup to get to work.
Note: This scenario is similar to the one presented in Monczka et al. (2002, p. 751).
Daniel R. Krause is an associate professor in the Department of Supply Chain Management in the W.P. Carey School of Business at Arizona State University in Tempe, Arizona.
Regis Terpend is a doctoral candidate in the Department of Supply Chain Management in the W.P. Carey School of Business at Arizona State University in Tempe, Arizona.
Kenneth J. Petersen is an associate professor of management in the College of Business at Colorado State University in Fort Collins, Colorado.
Table I GLOSSARY OF TERMS USED IN THE FIELD OF NEGOTIATION Terminology Definitions Reservation price The point at which a negotiator is or indifferent about accepting the Reservation value (Blount et al. offer or end the negotiation (Van 1996) Poucke and Buelens 2002) Resistance point (Walton and The least acceptable outcome McKersie 1965) (Blount et al. 1996) Walk-away price The boundary between an acceptable deal and an unacceptable deal or the lower acceptable price Aspiration price (White and Neale The best outcome that a negotiator 1994) can reasonably expect (Walton and or McKersie 1965) Negotiation target The best result, the most desired Target price (Walton and McKersie outcome, with a nonneglectable 1965) probability of being accepted by the other party (Van Poucke and Buelens 2002) Opening price The first price a negotiator is or going to mention (Van Poucke and Opening offer Buelens 2002) Market price Pricing information of a negotiated or object as available externally to Market information the firm (e.g., Blue Book value of a car) Market clearing price (White et al. 1994) Bargaining zone Any overlap between the parties' or reservation prices (Raiffa 1982) Bargaining range Contract zone (Walton and McKersie 1965) Settlement range Zone of agreement Aspiration zone The distance between a party's reservation price and aspiration price (White and Neale 1994) Offer zone The absolute value of the difference between the intended opening offer and aspiration price (Van Poucke and Buelens 2002) Reference point A point which serves as a basis for comparison in the negotiation, and more particularly separates the domain into region of desirable outcomes and region of undesirable outcomes (Kahneman 1992) Anchor point A point toward which negotiators or will convey a stubborn level of Anchor adherence (Kahneman 1992) Nash equilibrium The mid-point of the bargaining zone (White and Neale 1994) BATNA Best Alternative To a Negotiated Agreement (Fisher and Ury 1981) Overconfidence A common bias among negotiators (and humans in general) which consists of over evaluating the acceptability of a bargaining position (Neale and Bazerman 1985) Distributive bargaining stance, Trying to persuade the other party also referred in the literature to accept alternatives that favor as: one's own interest (Pruitt 1983) Competitive bargaining Win-lose bargaining Discrete transaction (Dwyer et al. 1987) Contentious bargaining (Pruitt 1983) Positional bargaining (Fisher and Ury 1981) Integrative negotiation stance, The pursuit of a formula for also referred in the literature reconciling the two parties' as: aspirations (Pruitt 1983) Problem-solving (Pruitt 1983) Trying to maximize own economics Cooperative reward while attempting to keep Collaborative client satisfied (Graham 1986) Relational exchange (Dwyer et al. 1987) Table II CHARACTERISTICS OF DISTRIBUTIVE AND INTEGRATIVE BARGAINING Distributive Bargaining Integrative Bargaining Also called Competitive bargaining Cooperative Hard bargaining Collaborative Win-lose bargaining Win-win Problem solving Goal Attain one-sided target Attain a mutually acceptable target Characteristics Short-term orientation Long-term orientation One-time deal Repeated transactions Few concessions Open to concessions Secretive/deceptive Open communication communication Strategy Push the settlement near Try to understand other the other party's party's needs reservation price Define the problem in a way Get the other party to that is mutually acceptable move its to both sides reservation price Establish trust Tactics Disruptive actions Depersonalize the problem Manipulation Separate problem definition Alliance with outsiders from solutions Aggressive opening offer Generate alternative Threats/intimidation/ solutions aggressive behavior Expand the resources for Hardball tactics. both parties Find a bridge solution Use breaks to cool off Clear and accurate communication Adapted from Lewicki, Saunders and Minton (2001). Table III RESULTS OF REGRESSION--MAIN FACTORS Model Variables B SE [gamma] t Sig. Model 1 Intercept 637.128 155.869 4.088 0.000 B Reservation* 0.243 0.127 0.333 1.910 0.062 B Aspiration -0.023 0.133 -0.029 -0.171 0.865 S Aspiration (#) 0.183 0.066 0.359 2.751 0.008 S Reservation 0.023 0.123 0.026 0.191 0.850 [R.sup.2] Adj- Model Variables [R.sup.2] Change [R.sup.2] F Sig. Model 1 0.263 0.203 4.372 0.004 Intercept B Reservation* 0.128 B Aspiration 0.001 S Aspiration (#) 0.133 S Reservation 0.001 *Denotes p < 0.1. +Denotes p < 0.05. (#) Denotes p < 0.01. Table IV RESULTS OF MULTIPLE MODERATED REGRESSIONS Models Independent Buyer's Buyer's Seller's Seller's Variables Reservation Aspiration Reservation Aspiration Constant 1230 (17) 1231 1233 1225 B Reservation 0.331 (#) -- -- -- (0.092) B Aspiration -- 0.191* -- -- (0.114) S Reservation -- -- 0.335 (#) -- (0.115) S Aspiration -- -- -- 0.189 (#) (0.061) NS1 74.7 (#) 62.60 (#) 82.29 (#) 48.14 (+) (22.21) (22.76) (23.66) (21.18) NS2 30.25 21.36 9.30 5.76 (23.00) (24.32) (23.41) (22.46) B Reservation 0.151 -- -- -- *NS1 (0.123) B Reservation -0.047 -- -- -- *NS2 (0.117) B Aspiration -- 0.256* -- -- *NS1 (0.139) B Aspiration -- 0.055 -- -- *NS2 (0.140) S Reservation -- -- 0.195 -- *NS1 (0.129) S Reservation -- -- 0.062 -- *NS2 (0.118) S Aspiration -- -- -- 0.194 (+) *NS1 (0.076) S Aspiration -- -- -- 0.031 *NS2 (0.085) *Denotes p < 0.1. (+) Denotes p < 0.05. (#) Denotes p < 0.01.
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|Author:||Krause, Daniel R.; Terpend, Regis; Petersen, Kenneth J.|
|Publication:||Journal of Supply Chain Management|
|Date:||Jun 22, 2006|
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