Sharing the market

By on / Daily, Negotiation Skills

The PON Clearinghouse offers hundreds of role simulations, from two-party, single-issue negotiations to complex multi-party exercises.  The Pepulator Pricing Exercise is a two-team, scoreable, multiple round, “prisoner’s dilemma”-style negotiation between representatives of two companies over the monthly price for fictional products called “pepulators”.

SCENARIO: The pepulator market is controlled by two giant companies: Pulsar Pepulator and Consolidated Pepulator. The monthly profits of both companies are determined solely by the price each charges and how it compares to the price of the competitor. Participants in this exercise act as the board of directors for each company, determining their company’s price of pepulators for each of several months. They are instructed that maximizing profits is their sole objective.

MECHANICS: This is a group exercise, with several people on the board of directors of each company. It is possible to have as few as three or as many as ten members of each board, though an average of six or seven members is most manageable. This is a time-slice game played in rounds, and it takes about 2-1/2 to 3-1/2 hours to run the entire exercise with review.

TEACHING MATERIALS:

  • For all parties:
    • General Instructions and Score Sheet
    • Monthly Price Report Message Forms
  • Teacher’s package:
    • All of the above
    • Draft Teaching Note

PROCESS THEMES: assumptions; commitment; communication; competition v. cooperation; compliance; constituents; credibility; decision analysis; education, as a means; ethics; game theory; group process; group-think; joint gains; managing uncertainty; meaning of “success”; message analysis; misrepresentation; recurring negotiations; risk aversion; risk perception; trust

MAJOR LESSONS:

This is a so-called “social trap” exercise, in which long-term maximization requires unenforced mutual trust where significant short-term gains are possible by breaking that trust. In most rounds, communication must be implicit, and is hence highly ambiguous and subject to misinterpretation, usually by the projection of negative and adversarial intentions that don’t actually exist. At certain points, the parties are given the opportunity to communicate explicitly, and may choose to reach pricing agreements or not (and subsequently, to honor those agreements or not).

The exercise highlights the frequency with which we make imprecise and inadequately supported assumptions, suggesting the importance of making and keeping assumptions explicit and testing them periodically.

The danger of self-fulfilling assumptions is also illustrated. Parties can turn cautious competitors into the cutthroat adversaries they fear by proceeding with preemptive ruthlessness.

The difference between reacting to the other side’s moves (or one’s perception of what those moves mean or will be), and acting purposefully to influence the other side to (re)act constructively, is easily illustrated by comparing the experience of different teams. The monetary variation tends to be dramatic between cooperative and competitive games, and analysis usually suggests that to establish the former, some teams have to take a risk. Players face the tension between seeking high short-term gains and low short-term risk inherent in a competitive strategy, and lower but more stable long-term gains inherent in a cooperative strategy.

The exercise presents rich opportunities to observe, analyze, and critique intra-group dynamics and decision making.

To purchase this role simulation, click here.

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