Introduction to Negotiation Analysis Guhan Subramanian Joseph Flom

Introduction to Negotiation Analysis Guhan Subramanian Joseph Flom Professor of Law & Business, Harvard Law School H. Douglas Weaver Professor of Business Law, Harvard Business School August 2017 Copyright © President & Fellows of Harvard College.

Preparing to Negotiate: Three Key Questions Party Diagramming: Who are the parties to this negotiation, and what are their underlying interests? BATNA Assessments: What will each party do without an agreement? A Good Outcome: Given parties, interests and BATNAs, what does a good outcome look like? Is it sustainable?

Case Study: Duke-Progress-NEIL $2. 25 B repair coverage ($136 M already paid on CR 3); $450 M replacement power coverage ($162 M already paid) Progress Energy Duke Energy Bill Johnson Jim Rogers Estimated CR 3 repair cost of $900 M-$1. 2 B, completed in 2014 North Carolina Utilities Commissioned Zapata study in March 2012 Florida Public Services Commission

CR 3 Delamination

A BATNA Checklist 1. Identify all the plausible things you might do without the other party, if you are unable to reach an agreement. 2. Calculate the value associated with each alternative. 3. Select which of these alternatives is best…this is your BATNA. 4. Important: always analyze the other parties’ BATNAs with equal care and objectivity.

Thinking Through BATNAs: Best Practices Illustration The Problem: Teddy Roosevelt 1912 Presidential campaign prints three million campaign brochures using a photograph of TR without asking permission of Moffett Studios, Chicago, which owns the copyright. Campaign manager realizes the error before the brochures are distributed. Unauthorized use would cost ~$1/brochure. Research reveals that Moffett is financially hard up, approaching retirement, and likely to be focused on money. What to do?

TR 1912 Campaign (cont) Telegram sent to photographer: “We are planning to distribute millions of pamphlets with Roosevelt’s picture on the cover. It will be great publicity for the studio whose photograph we use. How much will you pay us to use yours? Respond immediately. ” Moffett telegraphs back: “We’ve never done this before, but under the circumstances we’d be pleased to offer you $250. ”

A BATNA Illustration After Mississippi legalizes riverboat gambling in the late 1980 s/early 1990 s, entrepreneur approaches farmer to buy land for casino development. Before meeting, farmer hires an agriculture professor to estimate the value of the land. Agriculture professor conducts soil tests and estimates cash flows to conclude that the land is worth ~ $3. 0 million. In the negotiation, farmer (luckily) keeps quiet – first offer from entrepreneur is $7. 0 million. Farmer negotiates further and eventually reaches a deal at $8. 5 million. Source: Subramanian, Taking BATNA to the Next Level, Negotiation (Nov. 2006)

Win As Much As You Can: Rules Objective: Maximize your individual absolute ten-round total, not your group total, your relative score, or anything else. Preparation: Mark one card clearly with an “X”; mark the other card clearly with a “Y”. Form groups of four. Each Round: When I announce “One, two, three, play, ” throw down an X or a Y card at the same time as others. Bonus Rounds: Round Five (3 x), Eight (5 x), and Ten (10 x). Gain or loss for that round times the bonus factor is added to (or subtracted from) your cumulative score. Rule of Silence: No pre-play communication. Rule of Silence goes into effect after quartet formation except two minutes before bonus rounds (Five, Eight, Ten) during which communication is permitted.

Scoring

Outcomes

Structural Analysis X X

So how do I play the game well? Across numerous experiments in a 1 -on-1 setting, Tit-for-Tat repeatedly does the best: A simple strategy -- start with the “Y, ” and then simply mimic what the other side’s previous choice. Some Characteristics of Tit-for-Tat: Nice: Not the first to defect. Provocable: Doesn’t keep playing “Y” if counterpart plays “X. ” Forgiving: Quickly finds its way back to cooperation. Robust: Protects itself against “mean” strategies, but achieves winwin outcomes with “nice” strategies.

Putting it All Together: What Effective Negotiations Sound Like Starting off: “I’m confident that we’ll be able to find an agreement that works for both our organizations. ” “Let’s try to figure out how to create the most value here, and also make sure that each of us gets a fair piece of the pie. ” At the table: “It sounds like what’s most important to you in this negotiation is…” “Tell me more about…” “If we …, then would you be willing to…” Closing the deal: “What if we…” “Help me understand how you got to that proposal. ” “Since we seem to be at an impasse, is there some process we can agree to that can help us get to an objectively fair resolution? ”