Bargaining: An Entrepreneur’s Power Struggle
Bargaining is the process of two or more individuals engaging in a back an forth debate to try and settle the basis of a mutually beneficial exchange, where all of the parties involved retain positive incentives from the service or product at hand (in short it is a type of negotiation where the buyer and seller debate the price of a service or product). Unfortunately in majority of bargaining situations not all of the individuals leave the negotiation with a positive incentive and this is primarily due to the fact that in any negotiation what is really been fought/debated over (hypothetically) is power/control i.e. whoever has the most power in the situation tends to control the overall outcome of the bargain. As discussed in lecture, power is affected by many factors but more prominently the following (Note: I refer to people as “nodes”):
- Dependence: The more number of nodes solely dependent on one node e.g say node A makes node A more powerful.
- Exclusion: Extends on the concept of dependence, exclusion are the number of nodes that node A can choose from and all of these said nodes do not have other options to choose from, however if they do have other options it may make “A” less powerful.
- Satiation: This is when a node is able to acquire certain values in a negotiation at a much greater rate than other nodes because of the number of options that he or she has or the amount power over other nodes it has.
- Betweenness: This is when a node or an individual is considered to be most powerful when he/she has a higher “betweenness” i.e is between many other pairs of nodes. However, further research has shown that this factor is not as prominent or reliable and in some cases may actually be misleading since power depends on the other three factors the most.
These four main factors are what drive bargains and once power has been established the outcome should in theory(but not really ideal in real life scenarios) be balanced using the Nash equilibrium of Balance (The Nash Bargaining Solution); which gives us the basis on which two individuals(nodes) split a “dollar” with both of them having their respective outside options(other bargaining options that they have), their equilibrium values would be their respective outside options plus half of the surplus(the total incentive(1) minus the total outside options). In order to take the Nash equilibrium into account we must observe a bargain as a network with the buyers and the sellers being the nodes and the back and forth exchanges and power struggles being the edges of said network.
The article selected articulates the three golden rules of negotiation which put into perspective the above factors that influence bargaining on a large scale:
1. Always Start the Negotiations.
2. Always Negotiate in Writing.
3. Always Stay Cool.
To elaborate on the above rules in relation to the factors of power the first rule refers to the fact that one should always start the negotiation so as to oppose giving power to the other individual i.e. by starting the negotiation you create a dependence on you for the other individual who will always feel the need to chase your argument and try to meet your goals and expectations and thus increasing your power as a node in the network especially if there are many individuals in the bargain. The second rule stems on the idea that there should be a formally written agreement and from the factors above it introduces a sense of exclusion which is an extension of dependence whereby the parties involved feel the need to be committed to making more lucrative transactions since they know they do not have other options. The third rule elaborates on the fact that in the case of there being a heated argument between individuals, keeping calm and collective in addition to the use of logic would help you have higher satiation and have more people gravitate towards you during a negotiation and ultimately create a dependence on you which in turn gives you more power and control over the overall outcome of the bargain.
Sources:
- http://www.entrepreneur.com/article/225537: This is an article that elaborates on the three golden rules of negotiation.
- https://en.wikipedia.org/wiki/Bargaining: Gives us detailed explanations about bargaining.