Definition
Distributive Bargaining refers to a negotiation method in which involved parties compete to divide a fixed resource or pie, often resulting in a win-lose situation. It is based on the principle that one person’s gain is another person’s loss. This approach is commonly used when both parties are trying to maximize their own share of the resources and don’t expect to interact or negotiate again in the future.
Key Takeaways
- Distributive bargaining is a negotiation method in which all parties involved are attempting to divide a fixed amount of resources, often leading to a win-lose situation.
- It is based on the principle of zero-sum game where one party’s gain would mean an equivalent loss for the other party. The resources cannot be expanded and each party aims to get the maximum possible share.
- Distributive bargaining is often characterized by competition and lacks trust between parties. It is generally short-term in nature and may affect future relationships negatively.
Importance
Distributive bargaining is a crucial term in finance because it refers to a negotiation scenario where the parties involved compete to distribute a fixed amount of resources optimally.
This tactic is often seen as a kind of “zero-sum” game, where the gain of one party equates to the loss of the other, making it important in scenarios where there is competition for limited resources.
Understanding the concept of distributive bargaining enables individuals or entities to negotiate effectively in situations where the primary goal is to maximize their own advantage with regard to resource distribution, making it a critical part of strategic decision making in various financial contexts.
Explanation
Distributive bargaining, often referred to as “zero-sum” or “win-lose” bargaining, is primarily used in negotiations where financial or material resources are fixed and limited. The purpose is for one party to gain as much of the resources as possible, which is conducted under the inherent understanding that the more one side gets, the less the other side will receive.
It’s a common tactic in circumstances where parties do not expect to interact again in the future or have no interest in establishing a long-term relationship. Hence, the focus in distributive bargaining is on trying to win the biggest slice of the pie for oneself.
In practice, distributive bargaining plays a role in various scenarios such as negotiating salaries, purchasing a house, or other transactions where the price is the primary point of negotiation. Here, each participant’s goal is to maximize their own benefit.
However, it’s essential to note that while the use of this bargaining strategy may result in an immediate advantage, it could come at the cost of relationships, as it doesn’t prioritize mutual benefits or collaborative solutions. Therefore, distributive bargaining is most suited to one-time negotiations where there is little concern about maintaining a relationship between parties.
Examples of Distributive Bargaining
Salary Negotiations: One of the most common examples of distributive bargaining is during salary negotiations. In this case, both the employer and the employee have a certain range in mind and through negotiation, they will attempt to settle on an amount that is most favourable to them. The employer may wish to save on salary costs, while the employee could be aiming for a raise. In this zero-sum scenario, a gain for one side is typically a loss for the other.
Real Estate Transactions: In real estate, distributive bargaining often takes place during property sales. The seller wants to sell the property at the highest possible price while the buyer wants to buy at the lowest possible price. Through negotiation, both parties will aim to settle on a price that is most beneficial to them.
Automobile Sales: When buying a car, the dealership wants to sell the car at a high price to maximize profits, while the buyer wants to pay as little as possible to save money. The negotiation process between both parties to reach a mutually agreeable price is an example of distributive bargaining. In all these cases, the distributive bargaining process is mainly competitive, and the concurrent aim is to gain as much advantage as possible.
Distributive Bargaining FAQ
What is Distributive Bargaining?
Distributive Bargaining refers to a negotiation method in which parties compete over who gets what percentage of a fixed value or asset. Here, the gain of one party reflects the loss of the other, thus it’s often referred to as win-lose, or zero-sum bargaining.
When is Distributive Bargaining used?
Distributive bargaining is most commonly used when dealing with single-issue negotiations, i.e., when the focus is majorly on price. It is also beneficial in situations where the involved parties do not expect to cooperate or negotiate again in the future.
What are the pros and cons of Distributive Bargaining?
Distributive bargaining can result in quick agreements, especially when time is of the essence. Also, it can maximize a party’s share if they are the more skilled or informed negotiator. However, it can damage relationships due to its competitive nature and may inhibit potential for future collaborations.
Is Distributive Bargaining the best strategy in all contexts?
No, Distributive Bargaining isn’t always the best strategy. If the parties have ongoing relationships or if the negotiation isn’t solely focused on price, other strategies like integrative bargaining may lead to a more beneficial, win-win outcome.
How can one be effective at Distributive Bargaining?
To be effective at Distributive Bargaining, one should strive to accumulate as much information as possible about the negotiation subject and the counterpart’s interests. It’s also crucial to have a clear understanding of one’s Reservation Point and target point. Additionally, strong negotiating and communication skills can greatly assist in being effective at Distributive Bargaining.
Related Entrepreneurship Terms
- Zero-Sum Game
- Negotiation Tactics
- Reservation Price
- Win-Lose Situation
- Bargaining Power
Sources for More Information
- Investopedia: An excellent resource for understanding financial terms and concepts, including distributive bargaining.
- The Balance: A comprehensive personal finance advice site that explains many business concepts, including distributive bargaining.
- Business Dictionary: An extensive glossary of business terms and concepts, including distributive bargaining.
- Harvard Business Review (HBR): This publication features articles from experts in the field and covers a wide range of topics, including distributive bargaining.
