Hey Reader,
Outside of MUNprep, I work as a lawyer, and last week our firm had an oil pricing negotiation exercise that’s been stuck in my head all week. I think it holds some great lessons for all of us.
The Negotiation Game
We were split into two teams, each representing an oil-producing state (A) and (B). Our goal was to sell oil to a third country (C). We had to choose one of three different prices to set each month. The rules were simple:
- If we undercut the other team, we made a lot of money.
- If we got undercut, we didn't make much at all.
- If we both chose the same price, our profits were somewhere in the middle.
We could only communicate with each on specific months and could only see the price the other side had set. Here’s what the profit chart looked like (the numbers on the outside are the price per barrel, and the numbers on the inside are the monthly profit):
What Happened in Our Game
In short, our team ended up doing horribly. We pretty much had the worst case scenario. We ended up treating the exercise like a math problem that needed solving and forgot entirely about the human side of things.
Our two sides got caught in a deadlock, constantly setting the price at $30 per barrel with nobody trusting each other to raise the price at the expense of the other managing to undercut us. Even though our team tried to raise the price, we invariably got undercut both times.
Our chart ended up looking like this:
Meanwhile, another team had a very different experience. They managed to establish trust by making sacrifices earlier on and worked their way up to a higher, more stable price:
Lessons Learned - Applying them to MUN
Now, I'm not sharing all of this as some round about way to tell you that I'm a terrible negotiator (that would be really bad for business), but to show how easy it is to fall into a "race to the bottom."
The rules of the exercise were designed to tempt people to undercut their opponent. The problem is you can only get away with it once or twice before you completely ruin the relationship. Starting at the bottom might feel safe, but it makes it nearly impossible to climb back up.
The second chart shows that a "race to the top" is just as possible. While it could have been tempting to undercut the other side to gain an advantage,the problem with that mentality, is once you start at the bottom, it's nearly impossible to work your way up.
The Takeaway: How to Negotiate Effectively
Next time you’re in a negotiation, remember these points:
- Relationship and reputation matter more than you think. Your initial actions set the tone for the entire negotiation.
- Don't be passive. Many people sit back and wait to see "what the other party is willing to give up." In reality, this is the easiest way to end up with nothing.
- Be the one to take the first step. If you want to build a positive, productive relationship, you often need to be the one to show trust and make the first move. It might not always work out, but it gives you a much better chance of getting to where you want to go.
So next time you're negotiating, don't be afraid to take the plunge right from the very start. It might not always work out, but it definitely gives you a way better chance of getting there.
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Good luck!
