What Is Distributive Bargaining

Distributive bargaining is the approach to bargaining or negotiation that is used when the parties are trying to divide something up–distribute something. It contrasts with integrative bargaining in which the parties are trying to make more of something. This is most commonly explained in terms of a pie. Disputants can work together to make the pie bigger, so there is enough for both of them to have as much as they want, or they can focus on cutting the pie up, trying to get as much as they can for themselves. In general, integrative bargaining tends to be more cooperative, and distributive bargaining more competitive. Common tactics include trying to gain an advantage by insisting on negotiating on one’s own home ground; having more negotiators than the other side, using tricks and deception to try to get the other side to concede more than you concede; making threats or issuing ultimatums; generally trying to force the other side to give in by overpowering them or outsmarting them, not by discussing the problem as an equal (as is done in integrative bargaining). The goal in distributive bargaining is not to assure both sides win, but rather that one side (our side) wins as much as it can, which generally means that the other side will lose, or at least get less than it had wanted. (Distributive bargaining tactics rarely assume the pie will be divided in half.)

Often these approaches to negotiation are framed as incompatible.  Fisher, Ury, and Patton, authors of the negotiation best-seller Getting to Yes say that integrative bargaining is superior to distributive bargaining in most, if not all, circumstances–even in situations in which something is to be divided up.  By cooperating and focusing on interests rather than positions, they argue that the pie can almost always be enlarged or some other way can be found to provide gains for all sides.  Other theorists suggest this is naive–that distributive situations requiring competitive or hard bargaining often occur.

Conflict theorists Lax and Sebenius have suggested that most negotiation actually involves both integrative and distributive bargaining which they refer to as “creating value” and “claiming value.”  Negotiators should do as much as they can to “create value;” once the pie is as big as they can make it, they should claim as much of the value they can for themselves.  Knowing which approach to take when is what they refer to as the “negotiators dilemma.”

Why Is Distributive Bargaining Important?

Distributive bargaining is important because there are some disputes that cannot be solved in any other way — they are inherently zero-sum. If the stakes are high, such conflicts can be very resistant to resolution. For example, if budgets in a government agency must be cut 30 percent, and people’s jobs are at stake, a decision about what to cut is likely to be very difficult. If the cuts are small enough that the impact on employees will be minor, however, such distributive decisions can be made more easily.

Even in cooperative negotiations, distributive bargaining will come into play. Distributive bargaining and integrative bargaining are not mutually exclusive negotiation strategies. Integrative bargaining is a good way to make the pie (joint value) as large as it can possibly be, but ultimately the parties must distribute the value that was created. If they are able to expand the pie enough, distribution is easy. If there is still not enough to give each side what it wants, however, distributive negotiation will be more difficult.

Types of Bargaining

A collective bargaining process generally consists of four types of activities- distributive bargaining, integrative bargaining, attitudinal restructuring and intra-organizational bargaining.

Distributive bargaining: It involves haggling over the distribution of surplus. Under it, the economic issues like wages, salaries and bonus are discussed. In distributive bargaining, one party’s gain is another party’s loss. This is most commonly explained in terms of a pie. Disputants can work together to make the pie bigger, so there is enough for both of them to have as much as they want, or they can focus on cutting the pie up, trying to get as much as they can for themselves. In general, distributive bargaining tends to be more competitive. This type of bargaining is also known as conjunctive bargaining.

Integrative bargaining: This involves negotiation of an issue on which both the parties may gain, or at least neither party loses. For example, representatives of employer and employee sides may bargain over the better training programme or a better job evaluation method. Here, both the parties are trying to make more of something. In general, it tends to be more cooperative than distributive bargaining. This type of bargaining is also known as cooperative bargaining.

Attitudinal restructuring: This involves shaping and reshaping some attitudes like trust or distrust, friendliness or hostility between labor and management. When there is a backlog of bitterness between both the parties, attitudinal restructuring is required to maintain smooth and harmonious industrial relations. It develops a bargaining environment and creates trust and cooperation among the parties.

Intra-organizational bargaining: It generally aims at resolving internal conflicts. This is a type of maneuvering to achieve consensus with the workers and management. Even within the union, there may be differences between groups. For example, skilled workers may feel that they are neglected or women workers may feel that their interests are not looked after properly. Within the management also, there may be differences. Trade unions maneuver to achieve consensus among the conflicting groups.

A few more related terms

Principled Negotiation

Principled negotiation, described by Fisher and Ury in Getting to Yes, is a four-step negotiation strategy based on interests. In cases where there are reasonable prospects for an agreement which benefits all parties and the parties have a relationship which allows them to explore such opportunities, principled negotiation can be an extremely effective conflict resolution approach.

Soft Bargaining

Soft bargaining is a negotiation strategy in which primary emphasis is on the preservation of friendly relationships with the other parties. While this approach reduces the level of conflict, it also increases the risk that one party will be exploited by others who use hard bargaining techniques.

Hard Bargaining

Hard bargaining strategies emphasize results over relationships. Hard bargainers will insist that their demands be completely agreed to and accepted before any agreement is possible. While this approach avoids the need to make concessions, it also reduces the likelihood of successfully negotiating an agreement, and usually harms the relationship with the other party as well.

Process and Strategy in Distributive Negotiations

The process of distributive negotiation involves the interplay of one’s walk away value — the minimum or maximum one can accept before “walking away” from the deal — and the adversary’s walk away value. The trick is to get an idea of your opponent’s walk away value and then try to negotiate an outcome that is closer to your own goals then theirs. Whether or not parties achieve their goals in distributive bargaining depends on the strategies and tactics they use.

Information is the key to gaining a strategic advantage in a distributive negotiation. You should do your best to guard your information carefully and also try to get information out of your opponent. To a large extent, your bargaining power depends on how clear you are about your goals, alternatives, and walk away values and how much you know about your opponents’. Once you know these values, you will be in a much stronger position to figure out when to concede and when to hold firm in order to best influence the response of the other side.

Distributive Bargaining Strategies

Following will be the strategies to enlarge your slice of the pie, but before that one needs to ask oneself some questions.

Do I name an outrageously low figure and spend 15 minutes in flamboyant bargaining? Should I submit a cautious and reasonable proposal in writing, then stick to that proposal? Should I make a modest offer so that the other party isn’t offended?

Every negotiation is a gamble, a strategy game. A simple list will not turn you into a brilliant negotiator. Much depends on the kind of business you are in, cultural expectations, personality, and the strength of your position. Look over the suggestions below before you go into a negotiation and use the ones that fit your situation. Then come back to the list afterward to see which ideas might improve your outcome next time.

1. Preparation

Prepare yourself to walk away, to get your needs met elsewhere, so that you aren’t “needy” during the negotiation (for a deal, for attention, for control, etc.)

Develop a strong BATNA (best alternative to a negotiated agreement) and keep it to yourself. Otherwise the other party is likely to push you right to the edge of your alternative. (Exception: narrow bargaining zone and excellent BATNA.)

Research their BATNA and their intangible needs. How far can you press them? What matters to them?

Set high aspirations for yourself. Don’t look at your minimum standard (=reservation point) and say “anything better than this is a deal.” Research what the deal is worth in the market, think about the best real-world outcome you can imagine, then stretch some more and go for it! Negotiators often worry about appearing greedy. Base your high-yet-realistic goal on your research, rather than on your guess about what the other party thinks is reasonable.

Have a purpose, an agenda, and a “what next” in mind before each interaction with the other party.

2. Opening Offers

It’s always wise to listen carefully and ask many questions before making any proposal.

Make the first offer IF you’ve done your homework and have a good idea about what the transaction is worth.

After making an offer ……………………..WAIT for a response.

Be quick to counteroffer.

3. Exchanging information and arguments

Base your discussion on “objective” standards, principles, rationales, norms of fairness. (This is especially important in most corporate and Anglo/American public settings. In other cultures, or in close relationships, emotional and personal perspectives can be more persuasive.)

Beware of giving information that lowers your leverage just to seem “nice” or to signal that you trust them. They may not notice your signal or interpret it as you intended. Leverage given away is tough to regain.

Concessions and Decisions

Make sure you receive something of similar value for each concession you offer.

Start with small concessions (if any) –> give larger, more generous concessions towards the end.

Focus on your goal; don’t let your fears, anger, weariness, or ego derail you.

Don’t agree to split the difference unless it meets your interests.

Help the other party save face. Achieve what you need without humiliating others. Leave doors open.

Wise Allocation of the Pie

You are negotiating employee vacation schedules. You’re settling insurance claims. You’re grading on a curve. You’re negotiating a discount for a preferred client. What do these situations have in common?

These are negotiations that occur repeatedly (either with the same person over time, or similar transactions with many parties.) When you negotiations many distributive transactions over time, you need to be particularly careful about your decision-making mechanisms and the quality of your outcomes, not just the outcome of the current negotiation.

Checklist for frequent negotiations

Your outcome should be:

Consistent, generalizable

Simple to understand

Unambiguous

Justifiable

Based on a consensus about allocation process

(Relatively) satisfactory to the parties.

Examples

“Resolving Water Disputes”

By Gail Bingham, Aaron Wolf, and Tom Wohlgenant

Citation: U.S. Agency for International Development, Bureau for Asia and the Near East,”Resolving Water Disputes: Conflict and Cooperation in the United States, the Near East and Asia,” by Gail Bingham, Aaron Wolf, and Tom Wohlgenant. Applied Study, Irrigation Support Project for Asia and the Near East, November 1994.

The authors describe the special problems that water disputes pose for negotiated resolution. They then describe the negotiation stages and strategies used to resolve such complex disputes.

Characteristics of Water Disputes

Water disputes pose particular challenges for negotiation. Stakeholders may disagree on the nature of the dispute, on which issues are central, on who should be involved in negotiations, on how negotiations should be conducted, and even on whether negotiations are the best means of resolving the dispute. Many of these difficulties arise from the very nature of water disputes. Because water flows across legal and political boundaries, the number of potential stakeholders in a water dispute is increased. This boundary-crossing also means that various stakeholders may feel that they have recourse to better alternatives to negotiation. The stakeholders in water disputes are often organizations or institutions. These groups’ internal bureaucracies can further complicate the dispute.

In addition, water resource management is inherently technically complex and subject to much scientific uncertainty. This uncertainty and complexity can increase disagreement on the nature of the issues, and on which issues are central. Power differences between the stakeholders can also pose challenges for effective negotiations. Usually the party with the most power has the most say in crafting the resolution. In the long run, however, ignoring the needs of the weaker parties will destabilize any agreement, as the weaker parties will continue to agitate for more favorable conditions.

Negotiation Strategies

Negotiation success can be measured in different ways. Focusing on substance, negotiations may be called successful when they produce a mutually beneficial agreement at lower cost that an alternative forum, and when that agreement is implemented. Focusing on process, a successful negotiation would be one which was fair, efficient in terms of time and money, involved in all the relevant stakeholders, consistent with applicable regulations, and did not establish limiting precedents for third-parties. Focusing on relations, successful negotiations are those in which the parties maintain civil relations of mutual recognition and respect, and improve their joint problem-solving abilities. Generally the substantive measure tends to dominate.

One key negotiating strategy is to focus on interests rather than positions. A party’s interests are the reasons they have for holding a particular position on an issue. Negotiations based on positions tend to devolve into contests of will. They are less successful by any measure. Incompatible positions may be backed by compatible interests, and so negotiating on interests is more likely to produce fair, mutually beneficial outcomes without generating added hostility. In addition to separating interests from positions, it is helpful to generate a wide range of possible solutions before trying to come to a decision. It is also helpful for the parties to agree on the criteria by which possible solutions will be evaluated before actually setting down to evaluate the proposals.

Negotiating strategies may be integrative (win-win) or distributional (zero-sum). Negotiating on interests is often integrative. The goal is to make the parties’ interests compatible, so that both sides can “win,” that is, reach an agreement that satisfies their needs. While integrative negotiation strategies are preferable, they are not always possible. Sometimes parties’ interests really are opposed, as when both sides want a larger share of a fixed resource. In these cases distributional negotiations, which seek to distribute the costs and benefits fairly, are necessary. Water dispute often have zero-sum elements. Sometimes disputes which appear to be zero-sum can be reframed so that an integrative approach is possible. One way to do this is to find creative ways to increase or use the apparently “fixed” resource. Another way is to reinterpret the parties’ interests to make them compatible, or to find more basic interests which are compatible.

Negotiation Stages

The overall negotiation process is made up of three general phases: pre-negotiation, negotiation, and implementation. While parties often focus on the negotiation phase, the pre- negotiation and implementation phases are as important. Negotiations are proposed and organized in the pre-negotiation phase. In water disputes, getting the parties to agree to negotiate can be difficult. One way to bring people to the table is to show them that their best alternative to a negotiated agreement (for instance, litigation) is actually worse than negotiating. Show them that they are more likely to get what they want at lower cost through negotiations than through any other method. Other factors which contribute to a successful pre-negotiation phase include having a limited number of stakeholders and of related issues, of having parties that demonstrate interest in good faith negotiating, having the resources to conduct negotiations and implement agreements, and having some reasonable deadline for a solution. Once the parties agree to hold negotiations, they must then agree on the issues to be discussed, which parties to include, and on the negotiation procedures to be used.

Once the negotiation phase has begun the parties have four basic tasks to complete. First, they must confirm or modify the informal agreements on negotiation organization and procedure made during the pre-negotiation phase. Second, the parties must exchange information. The parties may need to share technical information. They should explain their interests and try to identify previously unstated assumptions. Listening is a key activity at this point. Third, once both sides have an improved understanding of the issues and interests, they should begin to generate creative options to seek mutually beneficial outcomes. Separating the invention stage from the evaluation stage helps to foster creativity and to maintain a cooperative rather than competitive atmosphere. Finally, the parties must narrow the options and settle on an agreement. Parties generally do this by identifying the issues on which they have agreement, those issues on which they were indifferent, and those on which there remained strong disagreement. The group may then either attempt to reach some agreement on the divisive issues, or may agree to address the divisive issues in later negotiations. Areas of agreement should be written up in a draft settlement.

Agreements must be implemented. In the implementation phase the agreement needs to be ratified by the negotiators’ constituency groups. The parties also need to negotiate such implementation issues as the definition of terms, terms of enforcement, and how unexpected circumstances will be handled. Agreements may fail to be implemented for a variety of reasons. The agreement may be impractical or unclear, the parties may act in bad faith, the constituent groups may not accept the agreement, or new or excluded groups may oppose the agreement. There are three basic tactics for avoiding implementation problems. The first and most basic tactic is to anticipate and avoid problems. Make sure that the proposed agreement is practically feasible, and that all the relevant parties have been consulted. A second tactic is to create self-enforcing implementation mechanisms. Self-enforcing agreements generally include rewards for compliance, negative consequences for violations, and provisions for monitoring compliance. Contingent agreements may give the parties additional incentives to comply; provisions which create an ongoing relationship between the parties also help to prevent bad faith violations. The third tactic is to specify mechanisms for dealing with problems which arise over the course of the implementation process. For instance, the implementation agreement may specify that future implementation disputes be submitted to arbitration or mediation.

The Manager as Negotiator: The Negotiator’s Dilemma: Creating and Claiming Value

D. Lax and J. Sebenius, “The Manager as Negotiator: The Negotiator’s Dilemma: Creating and Claiming Value,” in Dispute Resolution, 2nd ed., edited by Stephen Goldberg, Frank Sander and Nancy Rogers, (Boston: Little Brown and Co., 1992).

Lax and Sebenius argue that negotiation necessarily includes both cooperative and competitive elements, and that these elements exist in tension. Negotiators face a dilemma in deciding whether to pursue a cooperative or a competitive strategy. The authors suggest strategies to resolve this dilemma, and ways to encourage cooperative approaches to creating mutually beneficial outcomes.

Creating versus Claiming Value

Conflict analysts tend to view negotiations either as a matter of cooperating to create value, or as a matter of competing to claim values. In the value-creating view negotiators work primarily to increase the available resources, to find joint gains or “win-win” solutions, wherein all the parties will benefit. Negotiators must act cooperatively, and successful negotiators are open and creative. They share information, communicate clearly, maintain a cooperative attitude and focus on developing common interests.

In the value-claiming view negotiators work primarily to claim the largest share of the disputed goods. To be successful negotiators must engage in hard bargaining; they must “start high, concede slowly, exaggerate the value of concessions, minimize the benefits of the other’s concessions, conceal information, argue forcefully on behalf of principles that imply favorable settlements, make commitments to accept only highly favorable agreements, and be willing to outwait the other fellow.”

The authors argue that value creating and value claiming are linked activities. Creating new value improves both parties’ outcomes. However, having created new value, negotiators must still divide the resulting goods. Unfortunately, the competitive strategies used to claim value tend to undermine the cooperative strategies needed to create value. The exaggeration and concealment needed for effective competition is directly opposed to the open sharing of information needed to find joint gains. Conversely taking an open cooperative approach makes one vulnerable to the hard bargaining tactics to a competitive negotiator.

The Negotiator’s Dilemma

The tension between cooperative value-creating strategies and competitive value- claiming strategies results in a dilemma for the negotiator. This dilemma is closely related to the famous Prisoner’s Dilemma. Lax and Sebenius describe the negotiator’s dilemma thus: If both parties cooperate they will both have GOOD outcomes. If one cooperates while the other competes the cooperative party will get a TERRIBLE outcome, while the competitive party will achieve a GREAT outcome. If both parties compete they both will get a MEDIOCRE outcome. The dilemma is that both parties are better off if they both cooperate. They will both get good outcomes, as opposed to mediocre or terrible outcomes. However, in the face of uncertainty as to the other’s choice of strategy, each side’s best choice is to compete. They will either get the great outcome, or avoid a terrible outcome and get a mediocre outcome. If the other is cooperating,  the first side actually has an  incentive to compete. Of course, when each party follows this reasoning and adopts the competitive strategy they both end up worse off, with mediocre outcomes. Thus acting on a rational calculation of their individual best interests causes the parties to forego cooperative gains, and actually leaves them worse off than they could have been.

In real negotiations these choices present themselves at each stage, and the line between creating and claiming tactics is not clear cut. The authors suggest that the negotiator’s dilemma be seen as a metaphor for understanding the general tension between cooperative and competitive strategies.

Avoiding the Dilemma and Achieving Joint Gains

Conflict researcher Robert Axelrod’s has evaluated a number of strategies for dealing with the tension between cooperative and competitive strategies over the long run. His research on the related Prisoner’s Dilemma suggests that a TIT-FOR-TAT strategy yields the most cooperation and best overall results when applied to repeated rounds of the dilemma. In general the most effective long term strategies were nice, “provocable,” forgiving, and clear. The authors refer to such strategies as “conditionally open.” Nice strategies do not defect from cooperative to competitive behavior first. They are however provocable, in that they will defect in response to the other sides’ competitive behavior. They are also forgiving in that they will give the other party opportunities to resume cooperation. Finally the most effective strategies were clear and simple, so that the other party could anticipate the first party’s responses.

Lax and Sebenius apply the idea of conditionally open strategies to actual negotiations. First they note that repetition is key to the effectiveness of conditionally open strategies. “Player cooperate when they know that their current actions can affect future payoffs, when they believe that a defection now will lead to sufficient defection by their opponent to make the initial move undesirable.”[p. 56] One way to encourage cooperation in negotiations is to enhance this repetitive aspect. Negotiations can be broken down into a number of stages. Parties may have to deal with each other for a long time. Or concern for one’s reputation may link behavior in one set of negotiations to other negotiations.

In real life, negotiators have two advantages over the more formalized situation of the Prisoner’s Dilemma. Parties can communicate with each other, and they can make binding commitments. Parties can communicate their intentions, and so reduce the uncertainty which makes competition seem like an attractive option. Making binding commitments to punish competitive behavior (with a competitive response) and reward cooperative behavior (with a cooperative response) also reduces the other party’s uncertainty and risk.

In real negotiations there are also a number of ways to make cooperation seem more attractive than competitive value-claiming behavior. Focusing on interests rather than positions encourages a cooperative approach. Negotiators can build cooperative momentum by exhibiting a strong early commitment to cooperative attitudes. A particular negotiation may be located within a larger relationship and an ongoing series of dealings. A past history of cooperative dealings can create the expectation of further cooperation. Shifting the focus to maintaining trust and relationships also encourages cooperation. The authors also note that “when the negotiation is in fact one of many similar repeated encounters, the negotiators may be able to mitigate claiming in subsequent rounds by agreeing initially on a principle for division of gains.”[p. 58] Negotiators may stress norms of appropriate behavior, such as being reasonable, civilized or fair, which favor cooperative behavior. Over time these norms can become internalized.

 Creating Value

Lax and Sebenius argue that the most effective way to create value is to focus on the parties’ differences. “The basic principle underlying the realization of joint gains from differences is to match what one side finds or expects to be relatively costless with what the other finds or expects to be most valuable, and vice versa.”[p. 59] There are many sources of differences between parties. Negotiators may trade off differences in the parties’ concerns with form and substance, or ideology and practice, or outcome and reputation. When the parties differ in their expectations of future benefits or costs contingency agreements can be useful. When parties differ in their aversion to risk then risk-sharing schemes which place the greater risk on the less averse party can be used.

Integrative Bargaining and Distributive bargaining- AN OVERVIEW

Integrative or “interest-based” bargaining is a form of negotiation in which each party attempts to understand the other’s interests, on the expectation that it will achieve a better result by helping the opponent create a solution it sees as responsive to its own concerns.

This technique is important to anyone who is involved in a negotiation. Unless at least one party knows how to enlist the other in a mutual discovery of interests, negotiating behavior will typically result in a mutually defeating “zero sum” or “distributive” round of bargaining.

Integrative bargaining (sometimes called “win-win”) depends on understanding that parties often fail to reach agreement when agreement would have been in both parties’ interests, or reach an agreement which could have been better for both parties. In integrative bargaining, each party works at understanding what the other really needs out of the negotiation. This, in turn, depends on being able to question the other party about their interests, or otherwise discover what they really are (i.e. it is possible for one party to lead into this process even if the other party initially is not cooperative). In integrative bargaining, parties will tend to avoid taking arbitrary “positions,” while still being assertive about their needs. This approach is clearly distinguishable from “distributive” or “positional” bargaining, in which the usual sequence is for one party to start unrealistically “high” and the other to start low, with successive offers narrowing the difference – without either party really understanding what the other seeks to achieve.

There is a tension between the two approaches: Many negotiators believe that keeping as much as possible of their own side’s information secret from the other party strengthens their ability to obtain a favorable deal. In distributive bargaining, this is probably true. But in order for integrative bargaining to work, information must be shared. This can often produce a better result than the same negotiator could have achieved using distributive methods. The “catch” is that there is reason to believe that when one party aggressively uses positional methods while the other seeks an integrative solution, the aggressive positional party will get more.

One consequence is that many negotiators practice an elaborate form of “tit for tat,” in which the initial object is to find out whether the opponent is willing to play by integrative principles. If the opponent won’t play by these rules, the negotiator may feel safer reverting to a distributive approach.

Example:

The classic example involves two teenagers and an orange. If there’s only one orange in the refrigerator and both teenagers demand it simultaneously, a distributive bargain might well involve each of them getting half of it. In an integrative approach, each might ask the other why he or she wanted the orange, discovering in the process that one wanted to eat the inside while the other wanted the peel to bake a cake. The integrative bargain is obviously better for both