The impact of concession patterns on negotiations: When and why decreasing concessions lead to a distributive disadvantage

• Main Authors: TEY, Kian Siong, SCHAERER, Michael, MADAN, Nikhil, SWAAB, Roderick I.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: negotiations; concessions; reservation price; offers; signaling; distributive; Organizational Behavior and Theory
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6735; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7734/viewcontent/Tey__Schaerer__Madan____Swaab_OBHDP2021_decreasing_concession_patterns_in_negotiations.pdf
• Institution: Singapore Management University

We propose that making a series of decreasing concessions (e.g., $1,500–1,210–1,180–1,170) signals that negotiators are reaching their limit and that this results in a negotiation disadvantage for offer recipients. Although we find that most negotiators do not use this strategy naturally, seven studies (N = 2,311) demonstrate that decreasing concessions causes recipients to make less ambitious counteroffers (Studies 1–5) and reach worse deals (Study 2) in distributive negotiations. We find that this disadvantage occurs because decreasing concessions shape recipients’ expectations of the subsequent offers that will be made, which results in inflated perceptions of the counterparts’ reservation price relative to the other concession strategies (Study 3). In addition, we find that this disadvantage is particularly large when concessions decrease at a moderate rate (Study 4a) and when decreasing concessions takes place over more (vs. fewer) rounds (Study 4b). Finally, we find that recipients can protect themselves against the deleterious effects of decreasing concession by thinking of a target before they enter the negotiation (Study 5).