INSTITUTE OF MANAGEMENT STUDIES

GHAZIABAD

SESSION: 2009-2011

Assignment

On

Distributive bargaining with example

Submitted to: Submitted by:

Dr.

Date of submission PGDM IT

10-12-2009

Distributive Bargaining

Definition:

Distributive bargaining is bargaining in which whatever one party stands to gain, the other must give up.

Description:

Distributive bargaining is the most basic form of negotiation, in which the interests or intent of each party are irrelevant, there is no way to "expand the pie," and neither party is interested in doing anything in particular to prolong or improve the relationship. Many types of negotiation include distributive elements, even when they are more complex. Thus in labor negotiations, even while the parties may work very hard to design contract language governing vacations, seniority, and job promotions that satisfy both parties' needs and interests, when it comes to the wage portion of the bargaining each party may assume that whatever the union gains, the employer will have to give up, and treat this part of the negotiation as a classic distributive bargaining. In other settings, unsophisticated negotiators tend to assume that all negotiation is distributive, and to miss cues that would allow both parties to come out of the deal with more.

Example:

An American tourist goes shopping for a rug while on vacation in Istanbul. This kind of negotiation is usually thought of as a classic distributive bargain: the tourist and the rug merchant have no previous relationship and will probably never see each other again, and there are no posted prices in the shop. Haggling produces either a simple agreement on a price, or an "agreement to disagree" on the price such that the consumer walks away and shops elsewhere. And whatever additional money the merchant gets, the consumer gives up.

But consider the possibility of other elements — a rug merchant who would like to do more business by mail and Web site in the tourist's hometown of Detroit, or the tourist's interest in buying more than one rug over a period of time, however, and the picture potentially changes to an "integrative" negotiation in which many more things are at stake than a single price for a single purchase.

Application:

Distributive bargaining is so common that it is an everyday type of transaction, second only to fixed price "take it or leave it" transactions such as the price on a can of beans in a supermarket. Because it is so common and because (in the U.S.) everyone grows up with it, it contains a trap — people tend to believe it is the only way of reaching an agreement on terms. However, in many (but certainly not all) instances, integrative bargaining can actually yield a superior result.

Why Is Distributive Bargaining Important?

Distributive bargaining is important because there are some disputes that cannot be solved in any other way -- they are inherently zero-sum. If the stakes are high, such conflicts can be very resistant to resolution. For example, if budgets in a government agency must be cut 30 percent, and people's jobs are at stake, a decision about what to cut is likely to be very difficult. If the cuts are small enough that the impact on employees will be minor, however, such distributive decisions can be made more easily

Even in cooperative negotiations, distributive bargaining will come into play. Distributive bargaining and integrative bargaining are not mutually exclusive negotiation strategies. Integrative bargaining is a good way to make the pie (joint value) as large as it can possibly be, but ultimately the parties must distribute the value that was created. If they are able to expand the pie enough, distribution is easy. If there is still not enough to give each side what it wants, however, distributive negotiation will be more difficult.