Dispositional and situational factors on bargaining concession rates and outcomes: predictive power of NIMBuS–an integrated model of Buyer-Seller negotiations

Abstract

We propose a process model that examines the antecedents and consequences of bargaining concession rates with managerially relevant constructs grounded in social psychology to predict negotiation outcomes in a sales setting involving multiple issues. The situational factors of relative power, constituent’s monitoring, time pressure; and dispositional factors of bargainer’s personality toughness and risk-taking propensity are integrated to test the associated set of hypotheses. Our novel approach employs a fractional factorial design experiment to test the predictions of our NIMBuS solution. The results of our sophisticated bargaining experiment support our model and hypotheses and add to the literature for empirical generalizability. We find in our integrated test that concession rates tend to be lower when bargainers are in a higher relative power position, are under lower time pressure, have higher personality-toughness, or have a higher risk-taking propensity. The underpinning of economic models asserting the importance of discount rates for concession-making does not hold. Our results indicate that the cost-prohibitive mechanism of organizational monitoring of salespeople may not be needed. Importantly, under asymmetric bargaining power situations, our model predicts actual outcomes better than the Nash solution. The critical importance of integrating social-psychological factors to understand the bargaining process and improve predicted outcomes is underscored.

Keywords:

• Sales Management
• Buyer-Seller Negotiation
• Bargaining
• Game Theory
• Concessions
• Industrial Buying
• Social-Psychology
• Behavioral Experiment
• Power
• Time Pressure
• Organizational Monitoring
• Nash Solution
• Cross Model
• Predictive Power

Acknowledgements

The authors are particularly indebted to Brian Ratchford, Dean Pruitt, Gary Lilien, and Josh Eliashberg for their suggestions, support and most of all their mentorship. The authors thank the participants of the Marketing Science Conference, and the MaRCom group at UW Bothell for their feedback. They gratefully acknowledge the funding from UW Bothell and Quinnipiac University for research support and travel.

Declaration of interest

No potential conflict of interest was reported by the authors.

Endnotes

Notes

1 Other factors, such as prominent alternatives (Schelling 1960; Gupta & Livne 1988), equity and fairness (Ochs & Roth 1989), level of aspiration (Pruitt 1981; Patton and Balakrishnan 2010) are also important factors influencing bargaining outcomes. Our research attempts to extend the Cross model by incorporating those factors which are relevant to industrial and sales negotiations and direct antecedents to the concession rate, and how these factors might help improve the predictive power of bargaining outcomes based on the models that employ concession behaviors. Future research efforts should be directed toward incorporating these and other additional factors.

2 One can plausibly argue that some of the inter-relationships (interactions) between these variables of interest may exist. However, due to the large number of independent variables that are already included in the model, investigating potential interaction effects would make the already sophisticated experimental design too large and complex. Therefore, we specifically chose to investigate only the main effects of all of the proposed independent variables. We leave this as a topic for further study.

3 Pruitt (1981) indicates that the experiments in social-psychological studies of bargaining usually run five to fifteen pairs of subjects in each cell so that stable averages can be calculated on the measures taken.

4 This scale was refined by Rahim and Magner (1995) to 28 items, which was generalized from the interpersonal to the organizational level called the Rahim Organizational Conflict Inventory-II with the convergent and discriminant validities of the subscales measuring the 5 styles of handling interpersonal conflict.

5 Time pressure has been manipulated by the cost of continued negotiation (e.g., Komorita and Barnes 1969), by time or round available to negotiate (e.g., Yukl 1974), or by the combination of these two procedures (e.g., Hamner 1974). In the psychological literature, "double-barreled" manipulation is a procedure used to augment the strength of the variable. However, the results of these diverse implementations of time pressure have been highly consistent.

6 A pilot study shows that most pairs reached an agreement in about 10 rounds of offers; therefore, 10-rounds is chosen as the stimulus in high time pressure.

7 This timing is important because if the subjects were asked to answer the questions immediately before the experiment, the reactive effect may cause them to behave consistently to their answers to the questions. On the other hand, if the subjects answered these questions after the experiment, their answers might be influenced by their actual behavior during the negotiation; hence, reverse the cause-effect relationship.