4.3 Managing Concessions and Anchoring

Distributive bargaining often involves concessions to reach agreements. Concessions build trust, shape perceptions, and extract reciprocal compromises. Optimal patterns include starting small, making contingent offers, and timing strategically to establish cooperation or break deadlocks.

Anchoring techniques set expectations by making the first offer with precise numbers and credible justifications. To counter anchoring bias, negotiators should evaluate anchors critically, challenge with counter-anchors and data, and base concessions on their own interests rather than the other party's initial position.

Distributive Bargaining and Concessions

Role of concessions in bargaining

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• Concessions enable parties to reach agreement in distributive bargaining scenarios involving fixed resources (budget, assets)
• Demonstrate flexibility, willingness to compromise, and desire to find mutually acceptable solutions
• Build trust, reciprocity, and positive working relationships between parties
• Serve as strategic tools to influence negotiation process, shape perceptions, and extract reciprocal concessions (timing, size)

Optimal concession patterns and timing

• Begin with small concessions and gradually increase size to encourage reciprocity and avoid giving away too much early on
• Make concessions contingent on receiving reciprocal concessions from other party to ensure mutual compromise and maintain power balance
• Time concessions strategically based on other party's behavior and negotiation stage
  • Early concessions establish cooperative tone and build momentum (first 10% of negotiation)
  • Late concessions break deadlocks and close deals (final 10% of negotiation)
• Refrain from making unilateral concessions without receiving anything in return to prevent weakening bargaining position and losing leverage

Anchoring in Negotiations

Anchoring techniques for expectations

• Make initial offer or proposal to set reference point and influence other party's perceptions of what is reasonable (price, terms)
• Deliver first offer to gain psychological advantage, control negotiation, and limit other party's aspirations
• Use precise numbers in anchor to increase credibility and persuasive power
  • $98,750 perceived as more credible than$100,000
  • 18.7% discount more persuasive than 20% discount
• Provide objective criteria and credible information to justify anchor
  • Market data (comparable sales, industry benchmarks)
  • Expert opinions (appraisals, analyst reports)

Countering anchoring bias effects

• Recognize tendency to rely too heavily on first piece of information offered (anchor) when making decisions
• Evaluate reasonableness of anchors and consciously adjust expectations based on additional information and alternative perspectives
• Challenge other party's anchors with counter-anchors and objective criteria
  • Provide own anchor to shift negotiation in favorable direction ($5,000 vs.$10,000)
  • Cite data from credible sources to undermine validity of other party's anchor (independent market research vs. internal sales targets)
• Base concessions on own interests and priorities rather than solely on other party's anchor
• Prepare to walk away from negotiation if other party's anchor is unreasonable or unacceptable (extreme lowball offer)