67 Fish Pond Lane in Cambridge, MA was purchased five years ago for $95,000 by two lawyers. Since then, its value has at least doubled. The owners, expecting to stay for some time, kept the house in excellent condition and added several unique features, including an elegant high-tech aviary for exotic birds. The owners recently moved to California, however, and the house has been on the market for a month. Two graduating business school students are interested in purchasing the house. One or both of them plan to meet with one or both of the owners while the latter are in town for a few days to see if a sale can be arranged.
The exercise is a little more natural as a one-on-one negotiation with absent partners, but two-on-two negotiations also work and provide some interesting team dynamics. All instructions are neutral as to sex and marital status.
For all parties:
Confidential Instructions for:
- All of the above
- Teaching note
- This exercise usually generates difficult negotiations. In this familiar context the stakes seem large, and while there are many objective criteria on point, they are neither fully consistent nor determinative. The tendency to haggle is strong, and a variety of bargaining tactics can be used. Review can explore which tactics were effective under what circumstances, and why.
- Many important concerns and legitimate criteria in the case are intangible and/or difficult to measure. This raises the question of how arguments can persuasively be turned into numbers.
- The exercise is a good one for focusing closely on what specific events cause parties to change their offers, and what brings them to the point of closing the deal.
- A discussion of deadlines, their effects and how to create them, is usually appropriate.
- Comparison of results also raises questions about what techniques, attitudes and tactics produce more competition and/or animosity? How does amicability correlate with pareto optimality of results?
- A variety of questions are raised concerning the concept of BATNA. How does a party’s perception of its BATNA affect conduct in the negotiation? How should it? How can BATNAs be improved? When is it ethical to try to change the other side’s BATNA for the worse? When not? What are some ways of doing that?
- This exercise also facilitates a rich post-mortem consideration of how the parties might have prepared better.
Anchoring; BATNA; Bluffing; Closure; Commitment; Fairness; Information exchange; Interests, dovetailing; Interests, quantifying; Joint gains; Legitimacy; Misrepresentation; Objective criteria; Offers, first; Reservation price; Systems of negotiation