Bargaining Power

Reproducing a brief article from https://pestleanalysis.com/bargaining-power-in-business/

Negotiating the terms of any agreement, formal or not, is a complicated matter. Taking commerce as an example, buyers will always want to negotiate to the lowest prices possible, while sellers will always seek to sell at the highest prices possible. Bargaining power is one of many economic concepts introduced to facilitate the understanding of all of the different factors that can affect how deals are struck and how businesses perform.

What Is Bargaining Power?

Bargaining power is a measure of the capacity of one party to influence another. It is an important topic in negotiation because parties with higher bargaining power are able to leverage their circumstances to strike more desirable deals with others.

All of the parties in an agreement have their own bargaining power, however little or great.

What Determines Bargaining Power?

There are a number of different factors that determine or affect how much bargaining power a party has. In the following list, you can see some of these factors along with a short explanation of how they affect a party’s ability to bargain.

Factors that affect bargaining power:

Having alternatives — If a party does not need to be dealing with some other party, because they have alternatives, then they have more bargaining power. This is because they present a risk in being able to walk away from the deal without causing themselves too much trouble.

If a party does not have any alternatives, then they have little bargaining power as the other negotiators can threaten to walk away from the deal, leaving them in an unfavorable situation.

Little trouble in switching to an alternative — Similarly, a party has more bargaining power if there is little trouble in them switching to an alternative, and vice versa.

Lack of necessity/importance — If one of the parties in a negotiation can walk away from the deal without suffering any consequences, either due to a lack of necessity or importance to cut the deal, then they have more bargaining power. Once again, this is because it indirectly threatens the other party with them losing business, so they have to offer a better ‘bargain’.

Relevant knowledge — Being knowledgeable in relevant fields also provides parties with more bargaining power. This is because they are less susceptible to making unfavorable deals due to being uninformed or misinformed.

The trigger for this post is the twin bargaining situations we are facing at the moment. One is staff agitation. The other is students request to reduce fee components.

The bargaining situations often arise in many facets of our lives. Knowing the bargaining power we possess is crucial to successful negotiations. Assuming more power than we actually have can lead to self harm. On the other hand, having more power should not lead to exploitation. As long as both parties perceive what they have got, the negotiation is successful.

Assess your own bargaining power. Assess the bargaining power of the other party. Be reasonable. Keep the greater good in mind. Understand environmental limitations. Bargain for win-win.