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Negotiating in Oil
Financier...
Consider this common business exchange:
A man wants to
sell his old car.
This seller
realizes that if he asks someone else to sell his car for him, he will
have to, directly or indirectly, pay that second party a significant
part of the car’s value for the effort. So the seller decides to keep
this "transaction cost" for himself and puts an ad in the paper and
waits for calls from interested buyers.Let’s assume the seller figures that market value for his car would be
about $3,000. He also figures that, if the right person comes around,
he could sell it for $3,500. He therefore puts $3,500 as his starting
price and has decided not to take less than market value for this car,
the $3,000.
The ad attracts a potential buyer for this car. This buyer wants a car very much like what is advertised, and the
buyer and seller have agreed to meet.
Similar to the seller, the buyer has also estimated the market value
of the car at $3,000, but he starts his bid at $2,700 just to see how
bad the seller wants to sell this car. But the buyer also realizes
that he can't afford to be car shopping forever, so he decides he
would be willing to pay $3,200 to get this vehicle.
So now the dance starts. The seller wants $3,500; the buyer offers
$2,700. The seller does not divulge that he would be willing to settle
for $3,000; the buyer does not divulge that he would be willing to buy
for $3,200.
This $200 difference is often referred to as the
"negotiation room." Any
price between $3,000 and $3,200 will allow these two parties to
conclude this business deal.
But because neither party discloses their final price, the negotiation
essentially centers on who is going to get most of that $200, the
negotiation room. For sure, the seller would like to see that $200 in
his pocket. And for sure the buyer would want to keep that $200 for
himself!
So both parties play a bit of a game to see who gets most of the $200.
The seller hints that he has other buyers coming tomorrow. The buyer
hints that he thinks he has a better deal with another car. Both the
buyer and seller are trying to hold firm to their initial price for as
long as possible while trying to entice the other to change his price.
If they don’t get upset with each other while doing this dance, the
deal will conclude somewhere between $3,000 and $3,200.
This type of negotiating is known as "positional bargaining." Each
side offers the other a position. Each side has determined how much
they are willing to move from their position, but does not divulge
their possible movement the other side. Each side tries to hold on to
its position for as long as possible. Each side tries to get the other
side to move from their position by using various "negotiation
tactics" such as telling the truth, telling lies, taking the
negotiation to the edge of failure, and offering concessions on other
positions. In simple terms, positional bargaining is more or less a
game of brinkmanship, seeing who can blink first.
Modern negotiation theorists frown on positional bargaining as a means
to gain a negotiated agreement. I highly recommend that all Oil
Financier tycoons stay away from this process as well and use this
seminar to better their skills at "Win-Win" negotiation.
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