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. 

Unintended Consequences

I have heard stories of unintended consequences.

Here is the first one I heard from Madhu Sudan Padhi. During the time when British were ruling India, at one time, there was a problem of snakes in Delhi. They debated a for a solution. The solution they arrived at was crowd sourcing. Give incentive for catching a snake. Later they observed that too many snakes are caught. On investigation it was found that people are breeding snakes to claim incentive. The solution has the exact opposite effect of increasing the problem. It has a name now called the Cobra effect.

https://en.wikipedia.org/wiki/Cobra_effect

Here is one more. In the past, the banks will staple currency notes in bundles of 100. The problem was that the notes were damaged in the process. RBI came with a notification to stop this practice. Tata Steel found that they had a revenue loss of a few crores as the demand for staple pins dropped. RBI certainly did not intend to harm the steel industry through this notification.

Here is the last one. The Demonization in 2016 was meant to wipe out black money from the economy. But it ended up harming the real economy. Whether black money was eliminated remains debatable.

I was surprised to see a website on Unintended Consequences. http://ucstories.com/

Any action from me or us has consequences and sometime it is unintended. We often score a self-goal in the process. One needs to game our decisions to see its consequences on oneself and others,

Over confidence of a group

During this pandemic, I have been busy reading a few books. One of these books is Sapiens: A Brief History of Humankind by Yuval Noah Harari an Israli Professor. One of the messages from the book caught my attention.

The Homo Sapiens is a social animal. We live in groups. The groups have now gone beyond the geographical boundaries. Being social, we exchange information and knowledge.

I have not invented the air-conditioner. But, I use one for comfort. I assume it is safe because millions use it. I have not invented the mobile phone. But I use one for communication. I have not invented the bed and the mattress. But I use one for sleeping. I have not invented the pen or the paper. But I use them to write. I am not going to invent corona vaccine but I will use it when it is invented.

The question in my mind now is why did the inventor of air-conditioner, mobile phone, pen and paper allow me the use their inventions for my comfort and my work. If I were an animal, to use these gadgets, I would have to invent them myself. I will not share my tricks with any body. So, my fellow animal have to invent their stuff for their comfort. No so with Human Beings. We share every thing: some times free and some times for a price. The development of the human civilization is based on this principle. More so with academicians, who have to share their knowledge, old or new, with everyone in books and journals.

Socializing and groups breed confidence, some times over-confidence. When, we go to a strange place or a strange domain, we get more confidence when in a group and less so when we are alone. Refer to a previous blog by my colleague Sushant Mishra. Some of our students went to the beach in a group. When a few entered in to water, others who knew no swimming, also entered the water. They probably would not have entered the water individually. An incidence of over-confidence. One student died when the under currents pulled him into deep sea. The sea did not divide the tragedy among the group. There are many instances among the youth who do very risky stuff in a group without realizing the personal risks involved.

We do things in a group which we will perhaps not do as an individual. It has positive and negative connotations. We join a mob and resort to ugly behaviour because the mob gives us the confidence. However, when the police fire at a mob, they do not harm everyone but a few individuals. We join a cultural group and perform a play. The performance is appreciated and we all take credit. The performance goes bad and we all share the discredit.

It is easy to succumb to the over-confidence we derive from a group. But, we have to remember that when a bullet is fired at a group, it is not shared by the group and an individual takes it, . Some may survive the wound, others may succumb. If I do not want to take a bullet, I should not join a group where the bullets may be a possibility.