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Learn MoreThe Strategy of Bargaining
Rating: 4.4 out of 54.4(34 ratings)
736 students
What you'll learn
- Understand the strategic dimensions of bargaining
- Learn that bargaining is won or lost before anyone sits down at the bargaining table--cleverness is overrated
- Prepare for future negotiations by knowing the core mechanisms that determine every bargaining outcome
Explore related topics
Course content
5 sections • 47 lectures • 5h 24m total length
- The Bargaining Problem6:46Imagine another company offered you $20 to work for them. Your current company would like you to stay and is willing to pay up to $50 to keep you there. As such, both of you can gain by agreeing to a deal between $20 and $50.
But what will it be? Values closer to $20 is good for the company and bad for you, while values closer to $50 is bad for the company and good for you.
Ultimately, anything that pushes the wage closer to where you want it is a form of bargaining power. This course investigates the sources of bargaining power to put you in a better position to win your negotiations.
Minor correction around 3:50 in the video--the trivial cases are where the employer values you at less than or equal to $20. The non-trivial cases are where the employer values you at greater than $20. - The Sources of Bargaining Power10:43Ultimately, our goal is to understand the sources of bargaining power. Over the course of the lectures, we will cover eight such sources: proposal power, patience, outside options, monopoly power, reputation, credible commitment, costly signaling, and knowledge of the other side. This lecture previews those topics and provides intuition as to why they are helpful in bargaining.
- The Role of Models8:38Why focus on models to understand bargaining? What are some of the weaknesses of modeling?
- Outline4:49This lecture wraps up the introductory chapter. The second chapter will introduce the basic models of bargaining. The third chapter expands the basic models to allow us to analyze bargaining power. Finally, the fourth chapter explains how bargaining can fail even if mutually preferable agreements exist.
- Assumptions of the Ultimatum Game6:58Since assumptions drive the results of models, we spend a lecture discussing some of the important assumptions of the ultimatum game.
- Solving the Ultimatum Game9:13With the assumptions out of the way, we now solve the ultimatum game. The side with proposal power reaps nearly all of the benefits. The side without proposal power fares only slightly better than if no trade occurred.
- Notes on the Ultimatum Game6:00Need to review the logic of the ultimatum game? Check out these written notes.
- Experimental Evidence for the Ultimatum Game11:03How do experimental results compare to the ultimatum game's theoretical result?
- Bargaining in Monopoly7:59
Two super-smart players are going one-on-one in a game of Monopoly. What sorts of trades are possible?
- Bargaining over Cents6:53Previously, we constrained the parties to bargain in whole dollar increments. Here, we allow them to go to one cent increments. The proposer gains even more bargaining power as a result.
- Bargaining over a Continuous Good8:31In some cases, it makes sense for parties to bargain over fractions of a dollar. This means we can treat the surplus as a continuous amount. Now the proposer receives all of the surplus. Thus, the receiver has no bargaining power unless the bargaining space is discrete.
- Application: The Hastert Rule6:39A majority vote is required to pass legislation in the U.S. House of Representatives. However, not every bill goes up to a vote. The Hastert Rule says that a majority of the majority party must approve a bill for it to be proposed to the floor. This proposal power gives an amazing advantage to the majority of the majority but means that some bills never become law even if they have substantial support from members of the House.
- Application: The Federalist No. 784:15
Federal judges' lack of proposal power leaves the judicial branch weaker than other branches of the U.S. government.
- The Cost of Delay8:23Delay is costly--finishing a deal and sharing the wealth today is better than finishing a deal and sharing the wealth at a later time. To model the time in between offers appropriately, we need to account for that delay. This lecture introduces the discount factor for that purpose. We will use it beginning with the next lesson.
- Counteroffers11:31What happens if we allow individuals to make counteroffers to proposals they don't like? Things can radically change.
- Alternating Offers Bargaining8:20Why stop at just an offer and a counteroffer? This lecture shows what happens if the sides can exchange a total of four offers. Interestingly, a pattern emerges.
- Infinite Horizon Bargaining (Rubinstein Bargaining)10:25Rubinstein bargaining develops a situation where two parties can continue negotiating forever until they reach an agreement. If the parties are extremely patient, the distribution is equitable.
- Notes on Rubinstein Bargaining4:00Want to learn more about Rubinstein bargaining? Read these notes on bargainers' optimal strategies when the number of possible offers is truly infinite.
- The Value of Patience10:10Before, the players had the same level of patience. Now we allow their levels of patience to vary.
- Why the Rich Get Richer6:39Bargaining isn't fair--those who need a deal the most get the least benefit from it.
- Understanding Bargaining Basics
- Studying Bargaining Power3:34As we study other forms of bargaining power, we must choose whether to use richer, alternating offers models or simple ultimatum games. Since both show the same thing, we will opt for the latter choice--it will save us time and headaches.
- Bargaining over McDonald's Monopoly Pieces7:36In McDonald's Monopoly, a Park Place piece and a Boardwalk piece are worth $1,000,000 together. How much are they worth individually?
- Application: Warren Buffett's Billion Dollar March Madness Bracket Bet5:30
Why was Warren Buffet never worried he would have to give away a billion dollars? It's a lesson in bargaining from one of America's richest men.
- Application: The De Beers Diamond Monopoly5:10The De Beers diamond company turned nearly valueless gems into a big money maker. Here's how.
- Superstar Negotiations7:30If you--and you alone--can bring $60 extra dollars an hour to a business, how much of those additional profits go to you?
- Application: Baseball Free Agency5:16Baseball players were once stuck playing with their current team so long as their current team still wanted them. Free agency brought freedom to the players--as well as a much larger share of the bargaining surplus.
- Outside Options5:47Outside options are the alternatives someone has if bargaining fails. Don't be afraid to flaunt them!
- The Cardinal Sin of Buying a Car7:49Most people completely blow it when they buy a car. Here's how not to.
- Getting to the Car Dealer's Bottom Line3:50As a car buyer, you have a distinct advantage: you can find out the dealer's bottom line, but the dealer cannot find out your bottom line.
- Making Threats Credible4:34Actors can use threats to gain bargaining leverage...but only if those threats are credible.
- Burning Bridges8:48Sometimes limiting your future options is the only way to win.
- Tying Hands6:03You can make a threat credible by finding someone to punish you if things don't go so well.
- Protecting Reputations5:10Hiring hotshot negotiators can improve one side's bargaining position. But it comes at a cost...
- Sources of Bargaining Power
- Optimism10:34How does bargaining change if actors don't know how far the other will go to get a better deal?
- The Risk/Reward Tradeoff7:37Bargainers facing with uncertainty are in a no-win situation--either they play it safe and receive little from the deal, or they make aggressive offers and risk rejection.
- Notes on the Risk-Reward Tradeoff3:00Uncertainty leaving you uncertain? Read these notes on the risk-reward tradeoff.
- Skimming and the Purpose of Labor Strikes6:35What's the point of labor strikes?
- Application: CBS versus Time Warner Cable11:41
In August 2013, Time Warner Cable blacked out CBS when they failed to agree on a retransmission fee. This lecture explains why bargaining failed and they came to terms a month into the blackout.
Apologies for the "increase" typo at 7:35. - Application: The 2013 U.S. Government Shutdown8:12
Why did the United States Government shutdown in October 2013? Uncertainty provides one explanation.
- Buying a Car, Part III4:35In bargaining, perceived weakness is real weakness.
- Show Me the CARFAX (The Market for Lemons)8:22Things can go awry if only one side knows the real value of a bargaining good. CARFAX to the rescue!
- Costly Signaling9:45A college education can be rewarding even if the college doesn't actually teach you anything.
- Commitment Problems and Breaking Bad7:56Lack a third party to enforce the terms of your contract? You might be in trouble, as Walter White from Breaking Bad discovered.
- Iteration7:35Breaking up a transaction into many little pieces allows for cooperation contingent cooperation, which resolves commitment problems.
- Yelp Helps5:42Website rating services like Yelp help resolve commitment problems by enhancing (or harming) reputations. Want to take things a step further? Purchase a Yelp shirt.
- Bargaining Under Anarchy9:08Countries don't have a world police to run to when someone breaks an agreement. So why doesn't war happen more frequently?
- Explaining Bargaining Failure
- Wrap Up2:08If you learned anything from this course, it should be the following two points...
Requirements
- Logical thinking
- Background in game theory will be useful but totally unnecessary.
Description
This course takes the "teach a man to fish" approach--rather than blasting you with random bargaining tips, we discover how bargaining works, why some people win more than others, and when bargaining fails. Borrowing heavy from game theory, we build simple yet insightful models of bargaining and untangle the logic. Whether you are a professional negotiator or just want a better deal on a car, this class is for you.
Who this course is for:
- Anyone who will ever do some sort of bargaining in their life. So, everyone. Or at least those who don't mind a little bit of logic.