The strategic view of bargaining contends that one should look at bargaining as a strategic game of sequential and simultaneous moves. During strategic bargaining, one can gain an advantage by sticking to a committed strategy or taking a first-mover advantage (Froeb et al., 2018). The most pertinent aspect of strategic bargaining is the clarity of the rules of the game. This paper looks at strategic bargaining based on a numerical example and decision-making by each player.
Under strategic bargaining, a player can achieve better outcomes than the other party by deploying a committed strategy. For instance, if a company’s negotiators are engaged in talks with a labor union over a fixed sum, only two strategies are available to them. Usually, each party can either accommodate or bargain hard to achieve better negotiation outcomes (Zhu, 2018). However, both parties cannot bargain hard because no middle ground will be found and no deal struck as a result. In the same way, both parties choosing to accommodate means that the gain from the negotiation will be split and a substantial amount of leverage and resources will be left at the table. Balatti & Lopez-Quiles (2020) explain that in “a game of chicken,” the party that commits to a strategy would achieve a 75% advantage. Therefore, the party with the most leverage has to commit to a strategy while the other party’s option is to be accommodative or bargain hard.
To conclude, from a strategic perspective, bargaining is seen as a game of strategy characterized by sequential and simultaneous moves. The bargaining party with the most leverage stands to gain a 75% advantage from the negotiations if they choose to commit to a strategy in a “game of chicken”. On the other hand, the other party has no choice but to be accommodative and bargain hard.
References
Balatti, M., & Lopez-Quiles, C. (2020). Limited liability, strategic default, and bargaining power. SSRN Electronic Journal, 5(1).
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2018). Managerial economics – A problem-solving approach (5th ed.). Cengage Learning.
Zhu, Y. (2018). A note on simple strategic bargaining for models of money or credit. Journal of Money, Credit and Banking, 51(2-3), 739–754.