Edited by: PON_Staff, filed in: Business Negotiations, Daily, Financial Negotiations, International Negotiation,Negotiation, Personal Negotiations
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Adapted from “Making Threats Credible,” by Deepak Malhotra (professor, Harvard Business School), first published in the Negotiationnewsletter.
While the stakes are usually lower, negotiation often resembles a game of Chicken. Both sides make threats in an effort to change their counterpart’s behavior or beliefs. You might threaten to take your business elsewhere unless the other side sweetens her offer or pursue litigation if she refuses to address your grievances. Your success depends on whether your threat is credible. Does your counterpart truly believe you’re ready to walk away from the deal?
One way to make your threats more credible is to increase your costs of not following through on the threat. Imagine that you’re thinking about bidding to acquire another company that would be of great value to your firm. Your only reservation is that your bid might invite your biggest competitor to follow suit, instigating a costly bidding war. If you lost the war, your company would almost certainly take a hit in the stock market. Even if you won, the bidding war may have driven the price so high that the deal is no longer worthwhile. You would love to bid, but only if your competitor stays out of the game.
Rumors suggest that your competitor is willing to counter your bid, but you believe these are strategic leaks designed to scare you off. You know that your competitor probably doesn’t have the resources for such an acquisition and that it would lose a great deal if its bid failed. Because its threat to counter your bid is not credible, you decide you will place a bid.
See more at: http://www.pon.harvard.edu/daily/business-negotiations/make-your-threat-more-credible/?mqsc=E06/15/10+7:30+AM
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