Negotiation Strategy 653the claim by itself, the company might find it cheaper to settle than to go to
court. Nonetheless, on reputation grounds, it pays to fight to deter question-
able claims in the future.
Finally, the repeated bargaining relationship has a discipliningrole—a role
we already noted in Chapter 10 in our discussion of the repeated prisoner’s
dilemma. Recall that, in the one-shot prisoner’s dilemma, the dominant-strat-
egy equilibrium calls for noncooperation. In contrast, in the infinitely repeated
prisoner’s dilemma, continual cooperation is an equilibrium. The key to this
equilibrium is one side’s credible threat to punish the other’s noncooperation
with a retaliatory response. In short, bargaining partners that are “married” to
each other have obvious incentives to maintain a cooperative relationship.Business Behavior:
Failed
AgreementsIn actual business practice, negotiation behavior predominantly follows eco-
nomic predictions. For instance, when both bargainers have complete infor-
mation about the mutual benefits to be had from a successful transaction or
deal, an agreement should soon follow. Contrary to the notion of the litigious
American legal system, most disputes (some researchers estimate more than
90 percent) end in amicable settlement agreements rather than costly court
proceedings. Deal makers routinely trade off multiple issues and include con-
tingent clauses as needed in order to increase the total value of an agreement,
which the parties can then share.
Nonetheless, there are instances when bargaining behavior and outcomes
diverge from the textbook predictions advanced by economic principles. High-
profile disputes occur even when there is strong evidence of mutual benefit
from a timely agreement. Though less frequent today, costly strikes—the
lengthy screenwriters strike in Hollywood and the National Hockey League
impasse causing the 2004–2005 season to be canceled—persist. Most strikes are
ultimately settled at terms that could have been concluded much earlier, with-
out incurring the attendant economic costs to both sides. Frequently, top man-
agement of a target company rebuffs a merger or takeover advance, even when
it would deliver a large price premium to shareholders. Chief executive officers
(the venerable Jack Welch included) are tangled in costly and public divorce
disputes. The death of a business mogul triggers an ugly dispute about how his
or her inheritance and control of the family business should be divided among
layers of the family tree.
Recall our earlier point that disputants who hold the same information about
the case under contention should always find their way to an efficient, mutually
beneficial agreement (assuming one exists). But several factors impede agree-
ments in practice. First, research by psychologists has documented a key imped-
iment to agreements: self-serving bias. For instance, consider a bargaining
experiment in which participants are assigned the roles of plaintiff and defendant
in a legal case and are given exactly the same facts and information. The eco-
nomic prediction is that the parties (sharing the same valuation of the case)c15BargainingandNegotiation.qxd 9/26/11 11:03 AM Page 653