The clearest way to achieve exclusivity in negotiation is through an exclusive negotiation period, during which both sides agree not to talk to third parties—even if approached unexpectedly by others. In some industries, these terms are known as no-talk or lockout periods.
An exclusive negotiation period can facilitate deals in several important ways.
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Why Exclusive Negotiation Periods Can Work
1. They Signal That a Deal Is Possible
First, exclusivity allows both sides to signal that they believe a zone of possible agreement (ZOPA) exists. Otherwise, neither party would bother to cut itself off from other opportunities. This signal can help build the trust necessary to explore joint gains.
For example, when NBC and Paramount Television agreed to a 30-day exclusive negotiation period in 2001 to renew the hit show Frasier, the two sides implicitly acknowledged that NBC was the most natural—and likely—home for the series. Exclusivity reinforced a shared expectation of agreement.
2. They Temporarily Weaken Both Sides’ BATNAs
Second, an exclusive negotiating period worsens both sides’ best alternatives to a negotiated agreement (BATNA), since each party is effectively “locked out” from talking to others during the exclusivity window.
The magnitude of this effect depends heavily on the length of the exclusivity period. A one-year lockout—common in mergers and acquisitions—can significantly damage BATNAs. By contrast, a 30-day exclusivity period, typical in many commercial negotiations, imposes a much smaller cost.
Ordinarily, negotiators seek to improve, not weaken, their BATNAs to increase bargaining power. In this case, however, both parties are weakening their BATNAs in roughly equal ways. If neither side is sacrificing disproportionately valuable alternatives, exclusivity should have little effect on relative bargaining power or on the eventual terms of the deal.
3. They Create a Meaningful Deadline
Third, exclusivity establishes a clear deadline. With the clock ticking, one or both parties may feel pressure to put their best—and often final—offer on the table before the exclusivity period expires.
In this sense, exclusive negotiation periods resemble the “courthouse steps” bargaining common in litigation, where cases often settle at the last possible moment. The deadline concentrates attention, reduces delay, and can push negotiators past inertia.
The Drawbacks of Exclusive Negotiation Periods
While these factors can increase the likelihood of a deal, exclusivity is not cost-free.
Exclusivity is particularly valuable for a buyer with few alternatives, but correspondingly costly for a seller with many options. By agreeing to exclusivity, the seller gives up leverage that comes from negotiating with multiple parties and playing them off one another.
For this reason, sellers should ensure they have fully exploited the benefits of nonexclusivity—such as running an auction or soliciting competing bids—before committing to exclusive talks.
A well-known example comes from the 2003 bidding contest for Vivendi Universal Entertainment. Vivendi agreed to negotiate exclusively with General Electric only after General Electric survived three rounds of bidding and demonstrated a willingness to pay more than the remaining competitor. By opening with an auction, Vivendi ensured that its exclusive negotiations were conducted with the highest bidder.
When to Agree to Exclusivity—and When to Resist
Exclusive negotiation periods can be powerful tools, but only when used deliberately. Before agreeing to exclusivity, ask:
- Does exclusivity signal real momentum toward agreement?
- Are both sides giving up comparable alternatives?
- Have I already extracted the value of competition?
- Is the exclusivity period short enough to limit risk?
Handled well, exclusivity can accelerate dealmaking. Handled poorly, it can eliminate leverage and leave value on the table.
What do you think about extended negotiations and exclusive negotiation periods? Share your thoughts in the comments below.
Claim your FREE copy: Dealmaking
Discover how to boost your power at the bargaining table in this FREE special report, Dealmaking: Secrets of Successful Dealmaking in Business Negotiations, from Harvard Law School.
Adapted from “Hands Off! Negotiating Exclusivity” by Guhan Subramanian in the October 2005 issue of the Negotiation Briefings newsletter.
