Mastery Quiz 1 And 2 >>> Introduction to Negotiation: A Strategic Playbook for Becoming a Principled and Persuasive Negotiator
That’s right. The pie is how much more the two parties can create by working together compared to what they can create without an agreement. Therefore the pie is 12 – (3 + 1) = 8.
That’s right. If Abe and Bea split the pie (8), Abe will get 3 + 4 = 7.
If they don’t reach an agreement, Andrea will get $10 and Beth will get nothing. If they do reach an agreement, they will jointly have created $40 of surplus ($90 + $50 – $100). Thus the pie is $30.
If they split it evenly, each side will end up with $15 of the pie. Thus Beth pays $50 – $15 = $35 and Andrea pays $90 – ($15 + $10) = $65. Note Andrea starts with the $10 of value that she can create on her own.
If the software costs $100, the net benefit they would receive together is $200. If they work on their own, Aegean will not buy the software since the cost ($100) cancels out its benefit ($100). Baltic will buy the software for a net benefit of $200 – $100 = $100. Therefore the pie, or the difference between working together and working separately, is $200 – $100 = $100. The pie should be divided equally: $50/$50. Aegean and Baltic will each pay $50. Here it is in tabular form:
|Net Benefit: Together||——-||——||200|
|Net Benefit: On Their Own||0||100||100|
|Total benefit each side gets when they split the pie||50||150||200|
|How much each pays||50||50||100|
The pie gets split in half, not because the Planet and Gazette are equal in size, but because the cooperation of both parties is needed to complete the merger and create the pie.
That’s right. Under proportional division, Czar Bosch would likely get an amount proportional to their market cap, 40% (2/5th) of the $30 billion, or $12 billion. If they split the pie, then Czar Bosch would get $15 billion, or $3 billion more.
Your reserve price doesn’t change what the other side will offer. Thus anything you turn down is like throwing money away. You may choose to do so out of spite or to enforce a social norm, but doing so will lower your expected payout.
Remember the old adage: It is better to give than to receive. You would rather be the one making the offer since that person should get more than half of the pie. The advantage of being the one receiving the offer is you can guarantee yourself some money by saying yes to everything.
If a proportional split leads you to get more than half the pie and the other side is willing to agree, then go ahead.
If they don’t pool their funds, then Abe will only earn $10 of interest and Bea will earn $50. By coming together, they can earn $75, which is an extra $15 of interest. The two should spit this evenly, $7.50 and $7.50. Thus Abe would get $17.50 and Bea would get $57.50.