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ME-Multilateral-JG-2006 - Multilateral Negotiations...

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Multilateral Negotiations Bargaining with more the two players
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Coalitional bargaining Also called, ‘core’ bargaining: the basis of added value We may not be able to pin down exactly what will happen in a negotiation But we can rule out certain outcomes That will allow us to figure out the range of possible outcomes Basic idea: Individuals and Groups should never get less than their outside option (= what the group could get if they split off & went on their own)
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Basics of multi-party bargaining 1. Each person or sub group should never get less than their outside option Because they can always ‘split off’ and go their own way 1. No individual or subgroup can get more than their added value (= the extra surplus their presence creates) Because all others can always ‘throw you out’!
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The Core with 2 Players … How does this relate to 2-person bargaining? You will never get less than your BATNA, otherwise you’ll give up on negotiations and take your BATNA Depending on bargaining skill and the other factors described, you’ll get more or less of the surplus. (If you are evenly matched in skill, delay costs, and risks of breakdown, you’ll get half the surplus. But that is less certain than that you should never accept less than your BATNA)
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The Core Consider the coalition of all players An allocation or competitive distribution just refers to a split of the total payoff available to all players An allocation is blocked if some individual or subgroup is better off separating and going their own way (i.e. the allocation does not give them their outside option) An allocation is in the core if it cannot be blocked by any individual or coalition The core is the range of likely bargaining outcomes
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Airline JV example Three airlines, A , B and C are negotiating a joint venture By allying themselves, the airlines can offer business customers unbroken service from Europe, through the US to Asia (and back) An airline not joining the JV receives no surplus (BATNA = 0) Airlines A and C create no surplus alone A and B can generate $100m without C B and C can generate $150m without A If all three work together, a $200m surplus is generated Note: Airline B is critical to the JV This should influence what it gets as a result of negotiations
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Airline example What is the ‘range of likely bargaining outcomes? Is an equal split likely? No! Under an equal split, A , B and C each get $200/3 $66.7. B and C get an aggregate payoff of $400/3 $133.3. But, B and C can produce $150 on their own Rather than take $66.7 each to join the big JV, they could form their own JV and get, say, $75 each! Can’t imagine B and C would ever freely agree to such a deal Essentially, A and C compete to obtain B ’s productive services A competitive distribution is one where A and B together get at least $100; B and C together get at least $150; and the total $200 is divided up For example, if B got $150 and neither A nor C got anything, the stability
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