A quick word first
Thanks for visiting The Jazz of Negotiation! When you have a chance, check out the About page to see the aim of this publication and how it can help you become a more effective negotiator. Thanks! Mike
Caution: Something different ahead
This isn’t a case study, a research report, or a quiz on a moral issue. Instead, it’s kind of a wonky, step-by-step account of how negotiation is different when there are more than two parties at the table.
This is a little like doing a sudoku puzzle where you have to be simultaneously aware of number sequences in each row, column, and box. In multi-party negotiations, you similarly need to fit the pieces together to see who might get what (and who may be squeezed out).
Bargaining power gets much more complex in multi-party situations—and that impacts strategy.
First a little tough love from your negotiation fitness coach. Maybe this doesn’t sound like your cup of tea, but I encourage you to give it a try. My bet is that it will stretch your thinking about bargaining power—and lessen the risk of miscalculating your leverage next time you negotiate. And oh, at the end you can test your skill—and maybe win a prize.
Rules of the game
This scenario is based on a three-party exercise that I posted a couple of weeks ago. You can do it with friends or colleagues. No worries if you didn’t get around to it yet. You can play this in your head as you follow the moves below.
Star, Moon, and Comet are three independent companies. They are not competitors. Nor do they do any business with one another.
They have a unique opportunity, though, to collaborate on one special project. All three firms agree on the amount of net profit that could be earned in various possible deals. But they have not yet settled on who will participate in the partnership and how the profit should be divided.
The largest profit can be earned if all three companies take part in the project. But it is also possible for any two of them to do the project without involving the third company. (In that case, of course, the third company would get no share of the profits.)
Here are the total profits for the various possible venture:
Option Participating Companies Total profit (in US $)
ONE STAR, MOON, COMET $1,210,000
TWO STAR, MOON 1,180,000
THREE STAR, COMET 840,000
FOUR MOON, COMET 500,000
Remember that those figures represent total net profit for the project. Their challenge is deciding which of the four options to choose and how the profit for that option should be divided.
Two questions at the top:
1. Which party is the most powerful? At first glance the most powerful party might seem to be STAR, who brings the most value to the table. (If MOON and COMET do Option FOUR without STAR, the pot they would split is much smaller than the three possible payoffs with STAR participating.)
2. Which party is most vulnerable? Maybe that’s COMET, since STAR and MOON can earn $1,180,000 pairing up by themselves. Bringing in COMET adds only $30,000 to the payoff, a mere drop in the bucket.
But things aren’t always as they seem. Let’s play this out. Imagine that you’re in the role of COMET, who may not be so weak after all.
First proposal
Let’s say STAR and MOON tentatively agree on Option TWO, a two-party deal with STAR getting the larger slice (in deference to its clout) and MOON getting the balance.
They tell COMET, “Goodbye, have a nice day. It’s not worth the paper-work to bring you into the deal for adding just $30,000 more to the pot.”
Take a moment. How can COMET get back in the game?
Second proposal
COMET can propose a two-party deal with STAR, (Option THREE), with STAR getting $750,000 (much better than the prior $650,000 with MOON). COMET would pick up the $90,000 balance.
Now it’s MOON who’s on the outside looking in. (Are you beginning to sense where this is headed?)
Third proposal
But MOON can play the same game by going back to STAR and revising the proposed split of Option TWO so that STAR now gets $800,000 and MOON, the remainder, namely $380,000.
Talk about bargaining power! Things are looking very good for STAR at this point, with two competing suitors offering better and better deals. And once again, COMET is out in the cold.
Game, set, and match? Nope. Take a moment and think of what COMET could do next.
Fourth proposal —and beyond
COMET can go to MOON, and say, “You’re being treated unfairly by STAR. I’ll offer you more if we do an Option FOUR deal with you getting $400,000 and me, $100,000.
Now it would be STAR (who looked like the most powerful party) who is voted off the island. This is going around in circles. Where is it going to end?
Practical lessons
See the pattern now?
Any tentative proposal reached by two parties here always can be undercut by a counter-proposal offered by the party who’s being left out. There is no dominant outcome, sort of like old the rock-paper-scissors game. And just as things played out here, seemingly weak parties may be able to wield a lot of power.
This happens in the real world, too. Think of countries with parliamentary governments. If no party wins a majority of seats, a coalition must be formed. The marginal parties who are being courted can have disproportional clout. The same thing can happen in business, where a swing voter on the board or a bloc of shareholders can give a critical thumbs-up or thumbs-down on company policy. You don’t need to own a majority of the shares to control its destiny.
Here’s the key point. There’s a big strategic difference between two-party negotiations and other dealings where more than two are at the table. When there are only two parties, there either is a deal or there’s not. When there are more than two, there may be an all-in deal or other deals where somebody is frozen out.
Think back to the bargaining power and vulnerability questions I posed at the top. Yes, STAR brings the most to the table. That can be a strength, of course. But having the most to gain can also mean having the most to lose. If STAR overplays its hand, MOON and COMET may band together and push back.
Now the contest
But what should MOON and COMET do if STAR delivers this ultimatum?
“Look guys, fair or not, I’m in the driver’s seat. The best you can do without me is $500,000. I’ll bump that up that to $520,000. You two go off and decide how you’re going to split that. I’ll keep the rest, $690,00. You’ve got five minutes to give me your answer. The clock is ticking.”
What would you advise them to do? It might appear that MOON and COMET must give in, but there are ways that they can turn the table. If you see one, just make a comment right here (rather than emailing me). I’ll monitor all responses.
As a prize, the author of the most ingenious suggestion will win a free subscription to Jazz of Negotiation. With it comes access to special content: Q and A threads, videos, and from time-to-time short exercises, with more to come. Good luck!
P.S. Please share this piece with people in your network who want to expand their knowledge of negotiation. Thanks! Mike