Bargaining for Advantage

by G Richard Shell

  My second story comes from a boom year in the New York City residential real estate market: 1997. A three-bedroom co-op apartment on Park Avenue went on the market, priced to sell at $1.7 million. Bonnie Chajet of Ashforth Warburg Associates had the exclusive listing.

  As Ms. Chajet tells the story, the listing had not been on long when a man showed up with his own broker, looked at the apartment, and placed an all-cash bid for $1.4 million. The seller rejected the bid, telling the buyer he wasn’t even close. Nothing more was heard from him.

  Four days passed with no interest being shown in the unit. Finally, a second potential buyer looked the apartment over in the company of a different broker. He placed a bid of $1.3 million, which the seller also rejected. Chajet was at least pleased that so many different brokers were picking up on the listing.

  Finally, after another three days with no takers, a third buyer with yet another broker appeared and bid $1.275 million. The seller rejected the third bid, too, but he began to wonder if Chajet had priced the apartment correctly.

  When her client questioned the list price, Chajet did some investigating. It soon turned out that the second and third bidders were friends of the first one. “They were all in it together,” explained Chajet, “trying to give the seller the signal that he’d better take the ‘high’ offer.” The apartment sold a few days later—for the full price.

  Chajet and her client were the victims of bid rigging, a blatant form of deception. Like lowballing, phony bids are designed to exert subtle psychological pressure on people who do not suspect they are being conned.

  Techniques for Coping with Unethical Tactics

  What do these two stories tell us about “bargaining with the devil”? Let’s see if we can make a list of effective self-defense moves.

  WATCH OUT FOR “TRANSACTIONS”

  Certain situations pose a higher risk of unethical conduct than others. It is no coincidence that these two stories (as well as Darrell Sifford’s) were Transaction events (see Chapter 7). When the price is the primary issue and there are limited prospects for future dealings between the parties, there is a higher risk of ethical problems.

  One might have hoped that the car dealership in Singer’s story would have seen the sale as part of a potential relationship rather than simply a transaction, but the used-car segment of even a luxury-car business is sometimes staffed with people paid on commission who couldn’t care less about customer relations. Be on guard whenever the stakes matter and the relationship does not.

  The risk of unethical conduct rises even higher when competition is “hot.” Research shows that leverage imbalances at the bargaining table encourage unethical behavior. Interestingly, both the stronger and the weaker parties have incentives to lie and cheat. One set of authors concluded after their experiment that “it is to the advantage of those who possess little power to use deceit against those of greater power when they do not wish to comply with the latter’s demands.” Another set of scholars found that the more powerful party in an unbalanced situation can become “intoxicated” with his leverage. They offer the opinion that “in general, negotiators with more power are more likely to abuse that power by using less ethical tactics.”

  RELY ON RELATIONSHIPS WHENEVER POSSIBLE

  When seeking bargaining partners, use your relationship network (see Chapter 4) to advantage. Try to get recommendations, referrals, and introductions that will show the other side that the relationship with you matters. This move somewhat mitigates the incentives to behave unethically that would otherwise apply.

  Singer might have saved himself some grief by shopping for a dealership rather than a car. He could have checked with friends and gotten the names of dealers with a high reputation for service and fair dealing. He could have approached the dealership with these referrals from known, valued customers as partial protection from exploitative conduct.

  Relationships could not have helped Chajet because in the real estate market one has to take all comers. But it is worth noting that the seller was saved in this deal by his professional relationship with his broker, Chajet herself. Without a broker, the seller might well have fallen for this con game.

  Research shows that, in general, the prospect of an ongoing relationship raises people’s ethical standards. As one scholar has put it, “When a negotiator does not anticipate having to ‘live with’ the consequences of using ethically marginal tactics, she is far more willing to use them.”

  PROBE, PROBE, PROBE

  Be alert to the potential for deception in negotiation. Most people tend to give others the benefit of the doubt when judging whether lies have been told. This bias is fine for most of our social interchanges and for Relationship and Tacit Coordination situations involving negotiation. But it can be costly when the stakes matter in bargaining.

  If your suspicions are aroused, as they were in both Singer’s and Chajet’s cases, don’t rest until you discover what is going on. Chajet saved her client by conducting an investigation into the fake bids, probably by checking with her network, that is, the brokers who had innocently accompanied the phony buyers. As an astute negotiator, Sir Frances Bacon, put it in an essay called “Of Negotiating” he wrote in 1597, “In dealing with cunning people, we must ever consider their needs to interpret their speeches.”

  Singer could have done much better on this score. The car salesman misled him about the price, but Singer was a victim as much of his own assumptions as of the salesman’s guile. The salesman spoke clearly and carefully: “Would you buy it today for $8,500?” Singer might have fleshed out this curiously phrased question before drawing his conclusion that the car was available at that price. “Are you making me a concrete offer at that price?” he could have asked.

  Probing will help you gain insight into whether the other side’s story holds together, but do not expect the other party to come right out and admit he is acting unethically. You will have to rely on your judgment as well as his conduct. Research suggests that it is very difficult to detect when others are lying and, even when you do, to discern what they are lying about. You should check as many sources of information as possible before you draw a firm conclusion.

  If you discover that the other side is acting unethically, should you call him or her on it? Perhaps—if that advances your goals. But I would wait to see if direct embarrassment is really necessary. For example, suppose the buyer in Chajet’s case turned out to be the only interested party. His check for $1.4 million is good and the offer is all cash. Should you take his money or confront him with his unethical conduct? I think I would take the cash. But I would wait until the check cleared before I gave him the deed.

  BE ASSERTIVE AND PERSISTENT

  When other people are acting unethically, it is up to you to insist on fairness. Singer ultimately got his price by pushing back, persevering, and refusing to be lowballed. Chajet’s seller also pushed back. He was not stampeded into a sale based on the sequence of declining bids.

  MAINTAIN YOUR OWN STANDARDS—DON’T SINK TO THEIRS

  It is tempting to engage in tit for tat when the other side uses unethical tactics. We get angry. We lose perspective and start down the unethical path ourselves.

  Avoid this trap. First, no matter what school of bargaining ethics you adhere to, you need to keep your record clean both to maintain your self-respect and to avoid gaining a reputation for slippery dealing. Second, as soon as you begin acting unethically, you lose the right to protest other people’s conduct. Their behavior may give you a legitimate claim to extract concessions, or it may form the basis for a legal case. Once you join them in the gutter, you forfeit your moral and legal advantage.

  Figure 11.1 is a tool to keep yourself out of trouble with deception. You’ll have to decide for yourself whether the advice on the chart passes muster under your personal ethical standards. So far as I know, all of the alternatives are legal, so Poker School adherents who find themselves in a tight spot in which a lie will not work should feel free to use
them. Pragmatists usually prefer to avoid lies if relationships matter, so these will be helpful to them, too. Idealists can use any of these that involve telling the truth in a way that does not mislead or deflecting a question with an obvious, transparent blocking maneuver.

  Remember, there is no commandment in negotiation that says “Thou shalt answer every question that is asked.” And as an aspiring idealist, I have found it useful to follow this rule: Whenever you are tempted to lie about something, stop, think for a moment, and then find something—anything—to tell the truth about. If the other side asks you about your alternatives or your bottom line, deflect that question and then tell the truth about your goals, expectations, and interests.

  FIGURE 11.1

  Alternatives to Lying

  A Rogue’s Gallery of Tactics

  As my final offering on this topic, here is a list of the more common manipulative tactics you will encounter at the bargaining table. We have seen some of these before, but I will summarize them again for ease of reference. Note that only some of them involve overt deception.

  I do not label these “unethical” because most of them are well within the boundaries of the Poker School and some can work even for pragmatists when there is no relationship problem in view.

  LIES ABOUT BOTTOM LINES AND ALTERNATIVES

  We’ve talked about these. They are the most common lies of all. Take any statements of this sort with a big grain of salt unless you know and trust the other party, or you have all the leverage and the other party’s claims about its alternatives don’t matter.

  LOWBALLING

  This is the “too good to be true” offer the car dealership tried to use on Singer. The other side gets you committed to the deal before revealing the full, true cost to you. After you say “yes,” they know you want what they are peddling and they work the price back in their favor by adding terms.

  Don’t think this technique works only in sales. Have you ever met a children’s soccer coach who got you to agree to let your child play on his team, only to find out that the team practices every evening at dinnertime and plays on Sundays at 6 A.M.? That’s a lowball encounter.

  PHONY ISSUES

  Negotiation guru Roger Dawson calls this the “Decoy” or “Red Herring” technique. One side lists four or five issues as being very important or even vital, when, in fact, only one or two matter. The rest are phony issues. That side pushes hard on the whole agenda, creating a serious risk of impasse, then relents on all the phony issues in exchange for major concessions on the issues that really matter.

  Here is an example of the phony issues ploy involving some people we have met before in this book. When Akio Morita’s Sony Corporation was in the middle of its $5 billion purchase of Columbia Pictures in 1989, it negotiated a $200 million side deal with Jon Peters and Peter Guber for Guber-Peters Entertainment to run Sony’s new movie division. There was just one problem: Guber and Peters were already under contract with Warner Bros. and Warner’s boss, Steve Ross.

  Guber and Peters assured Sony that they had an oral agreement that Ross would release them from their existing contract if the Sony-Columbia deal went through, but they were secretly worried that Ross might cause trouble (and they were right—Ross subsequently sued Sony for $1 billion over this issue). The Guber-Peters team needed to negotiate as much time as possible to fix the release.

  Guber and Peters threw three issues onto the table in the final round of bargaining over their proposed contract with Sony: two phony issues and the issue of the time they would get after the Sony-Columbia deal closed to obtain their release from Warner. They negotiated all night on all three issues. At 7 A.M., the Guber-Peters team made its final move: “On point number one, we give up,” said their attorney. “On point number two, we give up. On point number three—the timing—you should give up.” Sony relented and gave them a full month to get their release.

  FAKE AUTHORITY PLOYS

  Lies about authority take two forms. First, people will lie and say they have authority when they do not. That was essentially what the car salesman did when he mentioned the $8,500 price to Singer just after visiting the sales manager. These lies are usually in the service of a lowball maneuver. They are hard to combat. In general, when in any doubt, it pays to ask for proof of authority when the other side makes an offer.

  The second kind of lie involves people saying they have no authority when in fact they do. Lawyers and other agents and brokers do this a lot. If you make an offer that is within their authority, they will lie and say that they are not authorized to accept your offer because it is not high or low enough. The solution to this problem is to avoid dealing with agents if you can. Make your offers directly to the people who have the power to say “yes” or “no.”

  Finally, watch out for authority ploys such as the ones discussed in Chapter 3 in which the other side presents you with a dense contract of “standard terms” or claims the boss is asking everyone to agree. Defer to authority if you must, but make sure the authority is real.

  OVERCOMMITMENT

  This tactic was discussed in detail in Chapter 10. Essentially, the other negotiator drags out the negotiation process and/or gets you to make an investment based on an assumption that it will go through. Then he raises or lowers the price or adds new terms at the last minute, trusting that you have too much invested to lose and so will say “yes.” The best antidote is to monitor your commitment and ask yourself if the other party is as invested as you are.

  GOOD GUY/BAD GUY

  This tactic was covered in Chapter 9. It uses the contrast effect to make otherwise unreasonable terms and conditions look reasonable. The bad guy introduces outrageous and demanding terms. His teammate, the good guy, becomes your advocate and argues the bad guy down to a merely aggressive level. You and the good guy bond against the bad guy. In the end, you win the argument and lose the negotiation. The best way to fight this is to recognize it, name it, and refuse to go along with it.

  CONSISTENCY TRAPS

  Chapter 3 discusses this tactic. A consistency trap works as follows: The other negotiator gets you to agree to an innocent-sounding standard or norm. Then he springs the trap by showing you that his proposal is the logical consequence of your admission. The solution to a consistency trap is to see it coming before you agree to the standard and hedge your commitment to the standard.

  RECIPROCITY PLOYS

  When we negotiate, we take turns exchanging questions and answers and making concessions. Watch out for people who either refuse to reciprocate in the process or who only appear to do so without giving substantive answers. The norm of reciprocity entitles you to tit-for-tat treatment in bargaining. Insist on it.

  THE NIBBLE

  Chapter 10 mentions this one. Parties nibble at an agreement just before closing. They raise an extra issue or demand that in and of itself is so small it does not seem worthy of debate. But they get this issue without trading for it, so it is pure profit. The dedicated nibbler can add 3 to 5 percent of value to his or her contracts this way. This tactic gains power from both the contrast effect and the overcommitment phenomenon. The antidote? Just say no. Or require something in trade for every concession requested by the nibbler.

  Summary

  Ethical dilemmas are at the center of many bargaining encounters. There is no escaping the fact that deception is part of negotiation. And there is no escaping the importance people place on personal integrity in their dealings with others at the bargaining table. One ethical slip and your credibility is lost not just for one but for many deals. Effective negotiators take the issue of personal integrity very seriously. Ineffective negotiators do not.

  How do you balance these two contradictory factors? I have presented three frameworks for thinking about ethical issues: the Poker School, the Idealist School, and the Pragmatist School. I personally think you are better off sticking to the truth as much as possible. I sometimes lose leverage as the price of this scruple, but I gain a greater measure of ease a
nd self-respect as compensation.

  Where you come out on bargaining ethics, of course, is a matter for you to decide. My only injunction to you is the one I started out with in Chapter 1 and repeated earlier in this chapter: Negotiators who value personal integrity can be counted on to behave consistently, using a thoughtful set of personal values that they could, if necessary, explain and defend to others.

  ETHICS: A CHECKLIST

  ✓ Decide which school of bargaining ethics you belong to.

  ✓ Determine whether you can use your relationships to offset the dangers of unethical conduct by others involved in the transaction.

  ✓ Probe, probe, probe. Don’t take what you hear at face value.

  ✓ Pause. Remember that you don’t have to answer every question.

  ✓ Don’t lie. Instead, find a way to use the truth to your advantage.

  12

  Conclusion: On Becoming an Effective Negotiator

  Do not be so sweet that people will eat you up, nor so bitter that they will spit you out.

  —PASHTO FOLK SAYING

  Everyone lives by selling something.

  —ROBERT LOUIS STEVENSON

  When we hear the word “negotiations,” most of us think about formal, even dramatic events involving diplomats, politicians, sports and entertainment personalities, CEOs, Wall Street deal makers, and labor lawyers. These negotiations are the “blockbusters” of bargaining: staged affairs conducted by trained, experienced professionals for the benefit of specific audiences.