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Let's Make a Deal: A Dynamic Exercise for Practicing Negotiation Skills

Article in The Journal of Education for Business · March 2014

DOI: 10.1080/08832323.2013.794121

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Let's Make a Deal: A Dynamic Exercise for Practicing

Negotiation Skills
a a
Gerard Beenen & John E. Barbuto Jr.
a
California State University, Fullerton, California, USA
Published online: 06 Mar 2014.

To cite this article: Gerard Beenen & John E. Barbuto Jr. (2014) Let's Make a Deal: A Dynamic Exercise for Practicing
Negotiation Skills, Journal of Education for Business, 89:3, 149-155, DOI: 10.1080/08832323.2013.794121

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 JOURNAL OF EDUCATION FOR BUSINESS, 89: 149–155, 2014
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ISSN: 0883-2323 print / 1940-3356 online
DOI: 10.1080/08832323.2013.794121

Let’s Make a Deal: A Dynamic Exercise

for Practicing Negotiation Skills
Gerard Beenen and John E. Barbuto, Jr.
California State University, Fullerton, California, USA

Because negotiation is among the most important skills for a manager to develop, activities that
Downloaded by [California State University Fullerton] at 17:49 20 May 2014

can foster its development are valuable for educators. The authors present an original exercise
that introduces three key concepts in negotiation: best alternative to a negotiated agreement,
distributive bargaining, and integrative bargaining. They review these concepts and present
the exercise and its purpose, and execution, then debrief. A unique feature of the exercise is
that instructors can configure dynamic buyer–seller dyads with varying distributions of power
between parties. A pre- and posttest using four questions to assess learning with Master of
Business Administration students and undergraduates suggest that the exercise is an effective
teaching tool.

Keywords: classroom exercises, negotiation, role play

2007; Rubin & Dierdorff, 2009). Experiential learning using

deal-making exercises is the best way to develop negotiation
“Never try to make all the money that’s in a deal. Let the knowledge and skills (Lewicki, 1997).
other fellow make some money too, because if you have a Though a number of published negotiation exercises are
reputation for always making all the money, you won’t have available, most if not all of these do not give students experi-
many deals.” ence with dynamic power distributions between negotiators.
—J. Paul Getty (cited in Branaghan, 2009, p. 136)
For instance, published negotiation exercises provide direct
exposure to Pareto efficiency (Ball, 1999), building self-
Effective managers know how to balance their own self- confidence (Taylor, Mesmer-Magnus, & Burns, 2008), devel-
interests with the interests of the other party, which is what oping critical thinking skills (Page & Mukherjee, 2007), and
good negotiators do. Negotiation is “a process in which two negotiating cross-culturally in an online context (Volkema &
or more parties seek agreement on what each shall give to, and Rivers, 2008). This article provides an experiential exercise
take from, the other(s)” (Movius, 2008, p. 51). Negotiation that introduces students to the fundamental concepts of best
skills are “at the core of the manager’s job” (Lax & Sebenius, alternative to a negotiated agreement (BATNA), distributive
1986, p. 2), and a key component of managerial effective- bargaining, and integrative bargaining. A unique feature of
ness (Munduate, Ganaza, Peiro, & Euwema, 1999) and career the exercise is the instructor can create buyer–seller dyads
success (Melamed, 1996). Good negotiators can adjust more with symmetrical and asymmetrical power to give students
effectively to their new jobs (Davey & Arnold, 2000) are bet- a dynamic experience with these concepts. The key lesson
ter at achieving work–family balance (Buzzanell & Meina, students take away from this exercise is that their BATNA in
2007), and are promoted faster (Fiona, 2008). Negotiation is the negotiation, and the extent to which they anticipate fu-
a core topic in organizational behavior textbooks (e.g., Mc- ture interactions with the other party, should influence their
Shane & Von Glinow, 2009; Robbins & Judge, 2010; Whet- negotiation strategy.
ten & Cameron, 2011) and an important, though underrepre- In the rest of this article, we provide a background
sented, component of business school curriculum (Navarro, for understanding power in a negotiation is a function of
BATNA. Next, we explain two rudimentary negotiation
strategies—distributive and integrative bargaining. We then
Correspondence should be addressed to Gerard Beenen, California State
University, Department of Management, 800 N. State College Boulevard,
describe the purpose and audience for the exercise, instruc-
Fullerton, CA 92831, USA. E-mail: [email protected] tions for facilitating it, and processing guidelines to glean
 150 G. BEENEN AND J. E. BARBUTO, JR.

key concepts practiced in the activity. Finally, we pro- rather than on rigid positions. A landlord using an integrative
vide preliminary indicators that the activity is effective at strategy with a tenant may consider the search cost of finding
increasing students’ understanding of a BATNA, and dis- a new tenant, the holding cost of a vacant property, and the
tributive and integrative bargaining strategies– indicating that benefits of a stable renter. The amount of rent is only one of
it achieves its desired objective. the issues to consider. An integrative strategy is usually best
if the negotiator expects to deal with the other party in the
future (e.g., a strategic supplier requiring high quality and
THEORETICAL BACKGROUND service). Alternatively, if the negotiator does not have the
upper hand, an integrative strategy can be considered.
Best Alternative to a Negotiated Agreement
(BATNA)
CONDUCTING THE EXERCISE
A manager’s power in a negotiation is defined by the BATNA
that he or she brings to the negotiating table (Bazerman & Purpose and Audience for the Exercise
Neale, 1992). The BATNA is what negotiators are left with
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when they fail to reach a negotiated agreement. For example, This exercise engages students in a simulated negotiation
a renter and landlord who fail to agree on lease terms will between a buyer and seller of a used car with the follow-
each be left with their BATNA. The renter’s BATNA may be ing learning goals: (a) experience how a BATNA can affect
buying or renting another home, or moving in with family a negotiation, (b) appreciate differences between distribu-
or friends. The landlord’s BATNA may be finding another tive and integrative bargaining strategies, and (c) develop
tenant, risking a rent-free period, or selling the property. The a vocabulary to help them discuss key concepts in negoti-
renter has a better BATNA and more power in the negotiation ation The exercise can be used in undergraduate or grad-
if affordable housing is abundant. The landlord has a better uate organizational behavior or negotiation courses, or for
BATNA and more power in the negotiation if housing is training–consulting, professional development, or executive
scare and there are a lot of eager tenants. Negotiators should education.
always keep in mind that expanding BATNA is an important
goal because it increases power in the negotiation. Preparation and Facilitation Instructions
Instructors can start with a brief lecture to introduce the con-
Distributive Bargaining Strategy cepts of BATNA, and distributive and integrative bargaining.
The most common strategy to which the uninformed nego- Alternatively, the exercise can be run first with the concepts
tiator is accustomed is usually characterized as a win–lose or introduced after students reflect on their experiences. Stu-
fixed pie approach. Distributive negotiators are eager to win dents will be assigned to dyads as a buyer and seller of a
at the other party’s expense. Distributive bargaining involves used car using configurations noted below as selected by the
negotiating with a focus on one’s own position rather than instructor. For an odd number of students, one student can be
the underlying issues that each party values. A landlord us- paired with the instructor or assigned as an observer–data col-
ing a distributive strategy with a tenant maybe focused only lection assistant. Schedule the exercise before a brief break
on getting the highest rent possible, and may overlook other or at the end of a class, with discussion after the break or
important issues (e.g., cost of finding a new tenant, benefits at the start of the next class. The exercise works best if stu-
of a long-term tenant). dents can negotiate without others interfering. The instructor
A distributive strategy is most appropriate under two con- should observe dyads to ensure they understand their roles.
ditions. First, the negotiator has a stronger BATNA than the Plan 30–40 min to run and process the exercise.
other party. Second, the negotiator anticipates little or no There are two versions for each of the buyer and seller
chance of dealing with the other party in the future. That is, roles—a weak BATNA (buyer needs a car now, and seller
the negotiator has the upper hand and only needs a short-term needs to sell the car now), and a strong BATNA (buyer has
or single transaction with the other party. When both parties other alternatives, and seller is considering keeping the car;
have equal power and do not expect to deal with each other in see Appendix). The roles should be supplemented with a sim-
the future, a distributive strategy may be acceptable though it ulated Blue Book pricing chart (for an example, see Table 1).
can lead to an impasse. In such cases, an integrative strategy These can be configured in various ways. For the core con-
may be more appropriate. figuration, assign half the dyads to strong buyer/weak seller
BATNAs, and half to weak buyer–strong seller BATNAs.
The asymmetric power distribution in this configuration en-
Integrative Bargaining Strategy
courages the stronger BATNA negotiator to use a distributive
Integrative bargaining is a win–win or expanding pie ap- strategy. The average selling price is more likely to be higher
proach to negotiating. Integrative negotiators focus on the (lower) when the seller (buyer) has a stronger BATNA. To in-
underlying issues or goals that are important to both parties, crease the chances for impasse, assign dyads to strong buyer
 LET’S MAKE A DEAL 151

TABLE 1 what was the final price? Why were there so many different
Negotiation Exercise: Blue Book Pricing Provided to settlements?
Buyer and Seller Roles
The instructor can weave the concepts of BATNA, in-
Estimated market tegrative and distributive strategies into the discussion and
value for 2006 debrief. For instance, when students learn some had more
Toyota Prius Trade-in Private party Dealer retail or less advantageous positions (i.e., BATNAs), the instruc-
tor can guide the discussion into how these differences im-
National base price $7,737 $9,207 $10,410
pacted both the dynamics and outcome for specific negotia-
Optional equipment $0 $0 $0
Color $0 $0 $0 tion dyads. Students may wonder why not all negotiators with
adjustment—driftwood better BATNAs received better outcomes. The instructor can
pearl ask how much information sharing occurred between parties.
Regional $−32 $−40 $−44 Negotiators who revealed their stronger (or weaker) power
adjustment—for
position by signaling their BATNAs to the other party could
Southern CA
Mileage $−667 $−667 $−667 have been in a better (or worse) position than those who did
adjustment—95,000 not. The instructor also may introduce concepts of subjective
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miles value, emotion and personality, gender, and culture.

Condition $0 $0 $0 Subjective value suggests individuals have different util-
adjustment—clean
ities for different issues that affect negotiated settlements
Total $7,038 $8,500 $9,699
(Curhan, Elfenbein, & Xu, 2006). Some may value a car’s
appearance, while others value reliability. These may affect
and seller BATNAs. Adding this to the core configuration the price they pay or other final conditions (e.g., detailing the
should provide an engaging experience. To increase coop- car before delivery, mechanical inspection). Subjective value
eration and reduce contentious negotiating dynamics, assign creates opportunity for integrative agreements if parties can
dyads to a weak BATNA role. Another way to facilitate an in- identify and agree on issues that each party values more than
tegrative strategy is to modify the roles so negotiators expect the other.
future dealings (e.g., buyer and seller are friends). Regarding emotion, angry negotiators may be more able
As buyer and seller roles are given to each student dyad, to get what they want, while happy negotiators may be more
the following guidelines should be presented: (a) do not share willing to give in. Anger in negotiation, however, has sig-
your role description with your negotiation partner, though nificant downsides including less willingness to deal with
you may share information as you see fit; (b) read your role the angry party in the future, greater conflict between what
carefully and thoroughly and think of yourself as someone negotiators want to do and think they should do, lower ac-
who is really buying or selling your car; (c) find a quiet place curacy in judging others’ interests, and a lower likelihood of
to negotiate; (d) do not use coercion, lie, or misrepresent any achieving joint gains (Bazerman, Curhan, Moore, & Valley,
facts presented to you in order to accomplish your goals in 2000). Personality traits such as assertiveness or need for
the negotiation; (e) try to consider issues that are important power might have impacts on negotiated settlements, though
to you in this negotiation, beyond price; (f) take 10–15 min research has shown individual differences generally are not
to plan and execute your negotiation. If you agree on a price effective predictors of negotiation outcomes (see Bazerman
and other terms, record the information on a bill of sale and et al., 2000).
return it to the instructor. If you do not reach a settlement, In terms of gender differences, women obtain better out-
note this on the bill of sale. comes than men when negotiating on behalf of others, while
men obtain better outcomes than women when negotiating
for themselves (Bowles, Babcock, & McGinn, 2005). Modi-
Processing Instructions
fications can be made to buyer or seller roles in this exercise
After doing the exercise, the instructor can display pricing (e.g., buying or selling the car on behalf of a close friend) to
results in a template available from Gerard Beenen. This is see if results corroborate with these research findings. Alter-
useful to demonstrate some of the concepts the exercise con- natively, outcomes can be simply compared for this exercise
veys. For example, if some are assigned to strong buyer/weak by gender.
seller BATNAs, and others to weak buyer–strong seller BAT- Finally, relevant cultural differences can impact negotia-
NAs, the average selling price should be lower for the former tion dynamics including collectivism-individualism, power
and higher for the latter. Sample discussion questions include distance, communication context, and perceptions of time
the following: Did any of you fail to reach a final settle- (see Bazerman et al., 2000). Collectivistic cultures (e.g., Tai-
ment? Why did this happen? What issues were important to wan) may focus on protecting relationships while individu-
you during the negotiation? What challenges, frustrations or alistic cultures (e.g., United States) may focus on protecting
roadblocks did you encounter while negotiating? What was individual rights. High power distance cultures that value so-
your BATNA as a buyer or seller? How did it impact how cietal hierarchies may rely more on authority figures to inter-
you approached the negotiation? If you reached a settlement, vene in negotiations. High communication context cultures
 152 G. BEENEN AND J. E. BARBUTO, JR.

(e.g., Japan) may be more attuned to non-verbal cues than low TABLE 3
context cultures (e.g., Germany). Finally, polychronic cul- Negotiation Exercise Final Sales Price for MBA and
Undergraduate Student Samples
tures (e.g., Asia, Middle East) process issues simultaneously
while monochromic cultures (e.g., North America, West- Average selling Average selling
ern Europe) process sequentially. Consequently, polychronic price (strong price (strong Average selling
cultures may be more apt to tolerate interruptions and to ig- Sample seller BATNA) buyer BATNA) price overall
nore turn taking in conversation than monochromic cultures.
MBA students — — $8,627
Students from different cultural backgrounds may be able to
Undergraduate $8,940 $8,550 $8,796
illuminate some of these differences in the debrief discussion. students

Note: n = 12 for strong seller BATNA, n = 7 for strong buyer BATNA.

One negotiating pair ended in impasse for undergraduate sample, two nego-
ASSESSING THE EFFECTIVENESS
tiating pairs ended in impasse for MBA sample, n = 42 for undergraduate
OF THE EXERCISE sample.

Sample, Procedures, and Measures

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student samples. The slightly higher undergraduate versus

To assess the exercise’s effectiveness, a four question pre- and MBA pretest score likely was due to the fact that the under-
posttest quiz (see Appendix) was given to 22 MBA students graduate students had prior assigned reading on negotiations
in an organizational behavior seminar, and 42 undergraduate and conflict management.
students in an introductory organizational behavior course Table 1 displays hypothetical Blue Book pricing. The
in a university in the western United States. The pretest was same pricing chart was provided to both buyer and sellers
done at the start of class, and posttest with the same questions roles. Table 3 displays the actual selling prices for both sam-
after the exercise and debrief were done. The undergraduate ples, which were not significantly different for the MBA (M
sample was 56% male, 26% Asian, 4% African American, = $8,627; SD = $468) and undergraduate (M = $8,796; SD =
44% Caucasian, 14% Hispanic, and 12% Middle Eastern, $535) samples. Two MBA dyads and one undergraduate dyad
and worked about 20 hr/week with a mean age of 24 years ended in impasse. Some undergraduate dyads were assigned
(SD = 5.5). The MBA sample included full-time students to a strong seller–weak buyer BATNA condition, while oth-
who were 48% male, 44% Asian, 16% Hispanic, 28% Cau- ers were assigned to a weak seller–strong buyer BATNA
casian, and 12% Middle Eastern, with three years of full-time condition. As expected, the average selling price was higher
work experience with a mean age of 25 years (SD = 2.7). when the seller had a stronger BATNA (M = $8,940; SD =
$322) and lower when the buyer had a stronger BATNA (M
= $8550; SD = $718). Given the small number of dyads,
ANALYSIS AND RESULTS however, the difference was not statistically significant.

A paired samples t test compared the number of correct an-

swers for the pre- and posttests for each sample as displayed
CONCLUSIONS
in Table 2. The MBA sample had significantly higher posttest
versus pretest scores (M = 3.64 vs. M = 1.73), t (21) = –5.93,
We have presented the rationale, content, and procedure for a
p < .001. The same was true for the undergraduate sample
classroom exercise intended to help students experience the
posttest versus pretest scores (M = 3.43 vs. M = 2.26 ±
concepts of BATNA, integrative and distributive bargaining.
1.33) t(41) = –5.17, p < .001. This suggests the exercise
These are core concepts in negotiation that are critical to
and debrief conveyed the meaning of key concepts including
include in both undergraduate and graduate courses. A sim-
BATNA, and distributive and integrative bargaining for both
ple pre- and posttest with MBA student and undergraduate
samples indicated the exercise was effective at conveying
TABLE 2 a rudimentary understanding of these concepts. We encour-
Negotiation Exercise Pre- and Posttest Scores for age educators to consider using this activity with their un-
MBA and Undergraduate Student Samples
dergraduate and graduate students to introduce the topic of
Posttest negotiation in their planned curriculum.
Pretest score score

Sample M SD M SD t p
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 LET’S MAKE A DEAL 153

Bazerman, M. H., & Neale, M. A. (1992). Negotiating rationally. New York, and doesn’t need any maintenance work. You negotiated the
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Lax, D. A., & Sebenius, J. K. (1986). The manager as negotiator: Bargaining meet the seller of this second Prius. You’ve already secured
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McShane, S., & Von Glinow, M. (2009). Organizational behavior. New and work to ride a bike. You’ve been taking a cab to save
York, NY: McGraw Hill/Irwin. time, but that is getting very expensive. You’re eager to close
Melamed, T. (1996). Validation of a stage model of career success. Applied the deal with the seller. You don’t think the Kelley Blue Book
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Robbins, S. P., & Judge, T. J. (2010). Organizational behavior (14th ed.). new plural for “Prius”) that seem promising. Both are 2006
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the alignment of required curricula and required managerial competen- steering, AM/FM stereo with CD player, air bags, and 4-
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Taylor, K. A., Mesmer-Magnus, J., & Burns, T. M. (2008). Teaching the art of first Prius you saw was in good condition with 89,000 miles
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Volkema, R., & Rivers, C. (2008). Negotiating on the Internet: Insights from
a cross-cultural exercise. Journal of Education for Business, 83, 165–172. the price any more. You told them you’d keep looking, and
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trusted mechanic. Your mechanic said the car is generally
APPENDIX
well maintained and in good shape. There are some small
dings and scrapes on the paint, and marks on the seats, but
Buyer Roles: Weak and Strong BATNAs
that’s to be expected in a 6 year old car with 95,000 miles. The
1. Buyer Role (Weak BATNA) Blue Book (see chart) suggests the car may sell for between
Your old car just died, so you need to buy a car. You’re focused $8,000 and $9,000 for a private party. But you know this is
on finding a used Toyota Prius. After scouring Craig’s List only an estimate. Similar cars may sell for more or less than
and AutoTrader.com, you found two “Prii” (yes, that’s the that.
new plural for “Prius”) that seem promising. Both are 2006 You’re returning from your test drive and preparing to
base models with standard features (air conditioning, power meet the seller of this second Prius. You’ve already secured
steering, AM/FM stereo with CD player, air bags, and 4- financing. You need a car because taking the bus is inconve-
wheel ABS braking system). That’s really all you want. The nient and time consuming, and you live too far from school
first Prius you saw was in good condition with 89,000 miles and work to ride a bike. At the same time, you’re evaluating
 154 G. BEENEN AND J. E. BARBUTO, JR.

if it makes sense to move closer to work and school so that need it any more. It has the standard features: air condi-
you don’t depend on owning a car. In fact, an opportunity tioning, power steering, AM/FM stereo with CD player, air
has just come up for you to move to a new place that’s close bags, and 4-wheel ABS braking system. After consulting
enough to bike to work and school, without raising your rent. the Blue Book (see chart below), which said your car was
This new place also is closer to more convenient bus routes worth between $8,000 and $9,000, you listed the car a few
that would allow you to use the bus for work, school and days ago with an asking price of $10,000 on Craig’s List. A
shopping when the weather is bad. Plus ZIPCar R
, the new number of people have emailed and texted you about the car.
car sharing service, recently added vehicles near campus that However, so far only two potential buyers have come to see
you can use for day trips when you want a car, for less than it.
the cost of owning. The first potential buyer offered you $7,000, but refused
On the one hand, you like the freedom that goes with to pay any more. You weren’t ready to sell at that price. After
owning your own car. So you’re still willing to buy the Prius all, that’s why you decided to sell the car on your own rather
if you can get a really good deal. On the other hand, rising gas than trading it in at the dealer. You have their number and
prices, the opportunity to move to a more convenient place, can call them if you change your mind.
and the potential for ZIPCar R
as a lower cost option, cause You’re now dealing with the second potential buyer. This
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you to question if you really need to buy this Prius. person took the car out on a test drive, and had it inspected
by a mechanic. You know your car is in good condition. The
second potential buyer is coming back from the test drive to
Seller Roles: Weak and Strong BATNAs
negotiate with you.
1. Seller Role (Weak BATNA) During the second potential buyer’s brief test drive, you
It’s time for you to sell your 2006 Toyota Prius. You bought received 2–3 calls for the car (versus 2–3 calls over the pre-
it new 7 years ago, and it has 95,000 miles on it. You’ve vious few days)! You now think the Blue Book value may
generally done a good job maintaining it. It’s been a good car, be understated because it’s not accounting for the trend to-
but since you just bought a new SUV, you don’t really need it wards higher gas prices. Given this trend, you’re wondering
any more. It has the standard features: air conditioning, power if it makes sense to keep your Prius as a second car. After
steering, AM/FM stereo with CD player, air bags, and 4- all, your new SUV isn’t as fuel efficient as the Prius, and
wheel ABS braking system. After consulting the Blue Book keeping insurance on it shouldn’t cost much, and could more
(see chart below), which said your car was worth between than offset the fuel you’d save by driving the Prius on short
$8,000 and $9,000, you listed the car a few days ago with an trips.
asking price of $10,000 on Craig’s List. A number of people On the one hand, you’d like the cash if you can sell your
have emailed and texted you about the car. However, so far Prius at the right price, especially with the apparent increase
only two potential buyers have come to see it. in demand (and potentially price) for Prii given the expected
The first potential buyer offered you $7,000, but refused increase in fuel costs. On the other hand, rising fuel costs and
to pay any more. You weren’t ready to sell at that price. After the opportunity to keep the Prius as an economical second
all, that’s why you decided to sell the car on your own rather car cause you to question if you really need to sell it. You
than trading it in at the dealer. You have their number and may be able to save more money on gas by just keeping the
can call them if you change your mind. Prius.
You’re now dealing with the second potential buyer. This
person took the car out on a test drive, and had it inspected
Pre- and Posttest Questions for Concepts
by a mechanic. You know your car is in good condition. The
Conveyed by the Exercise
second potential buyer is coming back from the test drive to
negotiate with you. 1. A BATNA stands for
You’re eager to sell your car and close the deal with this a. I’m not sure
buyer. After all, the reason you’re selling the car to begin b. Best alternative to a negotiated agreement
with is you just bought a new SUV. And you really need the c. Buyer’s alteration of a negotiated agreement
cash from selling your Prius to help pay for gas since your d. Buyer’s adjustment to a negotiated agreement
new SUV isn’t as fuel efficient as a Prius. Plus, you don’t e. Buyer’s advancement to a negotiated agreement
want to pay insurance on two cars, so you’re pretty eager to
sell the Prius. 2. A BATNA gives
a. I’m not sure
2. Seller Role (Strong BATNA) b. Power to the negotiating parties
It’s time for you to sell your 2006 Toyota Prius. You bought c. Clarity to the negotiating parties
it new 7 years ago, and it has 95,000 miles on it. You’ve d. The selling party a sense that the buyer is decisive
generally done a good job maintaining it. It’s been a good e. The selling party a sense that the buyer is indeci-
car, but since you just bought a new SUV, you don’t really sive
 LET’S MAKE A DEAL 155

3. bargaining describes a strategy where negotiators 4. bargaining describes a strategy where negotiators
focus on maximizing their own gains in the negotiation. focus on creating mutual gains in the negotiation.
a. I’m not sure a. I’m not sure
b. Two-sided b. Two-sided
c. Integrative c. Integrative
d. Distributive d. Distributive
e. Contentious e. Contentious
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