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ZOPA Full Form - Zone of Possible Agreement

 Zone of Possible Agreement

Zone of Possible Agreement

  • A "Zone of Possible Agreement" (ZOPA--also called the "bargaining range") exists if there's a possible agreement that might benefit each side over their alternative options do.
  • For example, if Fred wants to shop for a second hand car for $5,000 or less, and Mary wants to sell one for $4,500, those two have a ZOPA. But if Mary won't go below $7,000 and Fred won't go above $5,000, they are doing not have a zone of possible agreement.
  • The ZOPA/bargaining range is critical to the successful outcome of negotiation. But it's going to take a while to work out whether a ZOPA exists; it's going to only become known once the parties explore their various interests and options.
  • If the disputants can identify the ZOPA, there's a decent chance that they're going to be ready to come to an agreement.

Foundations of ZOPA : BATNAs

  • In order for disputing parties to spot the ZOPA, they need to first know their alternatives, and thus their "bottom line" or "walk away position."
    • Alternatives : Parties must determine what alternatives they need to any agreement. Roger Fisher and William Ury introduced the concept of "BATNA" (Best Alternative to a Negotiated Agreement). This is often the simplest course of action that a party can pursue if no negotiated agreement is reached.
  • For example, Mary may need two potential buyers for her car. Georgio is willing to pay $6,950. Mary is now negotiating with Fred. If Fred can pay over Georgio (Mary's BATNA), she is going to sell to him. If Fred won't pay that much, she'll sell to Georgio. Likewise, if Fred has found another car he likes for $5,500, then he won't pay over that for Mary's car...maybe even a touch less. So Fred's BATNA is $5,500.
    • Bottom Lines or Walk-Away Positions : BATNAs determine each side's bottom lines. If you've got an alternate car available for $5,000, $5,000 is your bottom line. If you'll sell your car for $7,000, that's your bottom line. If you do not do better than that within the negotiation, you'll leave.
  • So, a zone of possible agreement exists if there's an overlap between these leave positions. If there's not, negotiation is extremely unlikely to succeed. In fact, it'll only succeed if one party either realizes that her BATNA isn't nearly as good as she thought, or she decides for a few other reasons to simply accept the agreement, although a different option might yield better results. (This often happens when parties don't explore or understand their BATNAs well enough, therefore settling for fewer than they might have gotten elsewhere.)

Identifying the ZOPA

  • If each side know their BATNAs and leave positions, the parties should be ready to communicate, assess proposed agreements, and eventually identify the ZOPA. However, parties often don't know their own BATNAs, and are even less likely to understand the opposite side's BATNA.
  • Often parties may pretend they need a much better alternative than they really do, as good alternatives usually translate into more power within the negotiations. This is often explained more within the essay on BATNAs. The results of such deception, however, could be the apparent absence of a ZOPA--and hence a failed negotiation, when a ZOPA actually did exist.
  • Shared uncertainties can also affect the parties' abilities to assess potential agreements because the parties could also be unrealistically optimistic or pessimistic about the likelihood of agreement or the value of other options.

ZOPAs in Distributive and Integrative Negotiations

  • The nature of the ZOPA depends on the type of negotiation. In a distributive (competitive) negotiation, during which the participants try to divide a "fixed pie," it's harder to seek out mutually acceptable solutions as each side want to say the maximum amount of the pie as possible.
  • Distributive negotiations over one issue tend to be zero-sum -- There's a winner and a loser. There’s no overlap of interests between the parties; therefore, no mutually beneficial agreement is possible. The simplest one can do--sometimes--is split the desired outcome in half.
  • For example, two people could also be competing for one job.
  • Within the simplest case, there's no ZOPA because both people want the full-time job and either they or the boss is unwilling to supply them each a half time job instead. So this can be the prototypical win-lose outcome.
  • One person wins, the other loses. Or, if they are doing both take a 1/2 time position, each wins half what they wanted and loses the other half.
  • On the opposite hand, integrative negotiations involve creating value or "enlarging the pie." This is often possible when parties have shared interests or are handling multiple issues.
  • During this case, The parties can combine their interests and trade off among multiple issues to make joint value. That way both parties can "win," although neither gets all that they originally thought they wanted.
  • In the example above, if rewriting the work description could create an extra job, then the distributive negotiation would become an integrative negotiation between the employer and therefore the two potential employees.
  • If both applicants are qualified, now they'll both get jobs. The ZOPA, during this case, exists when two jobs are created and every applicant prefers a special one among the two.

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