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must now find out what combinations of the various concessions we have
just outlined is optimal. This phase is the key to all integrative bargaining:
this is where the parties leave the narrow path of distribution and create
new values through reciprocal give and take.
Mutual gains though an exchange of concessions
But where do these values come from? The answer is, through the
process of integrative bargaining. For it is in its nature to enquire which
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new values
Integrative bargaining
of the parties appreciates which commodity more. Everybody has a dif-
ferent valuation of what a particular commodity or service means for
him. Its initial configuration is a given, and depending on this personal
assessment it has a certain value. We can increase its value to us by
exchanging those features we are less interested in for some that are more
attractive to us. Our partner to the transaction may value the features in
the precisely opposite way, and in any case differently from ourselves. If
we both had exactly the same views, we would not voluntarily enter into
a trade-off. After an exchange has been transacted each of the two has
enhanced the value of what he possesses; in other words, new values
have been created.
These new values consist of the accrued gain in benefit that the new
owner of the commodity that has been exchanged enjoys as a result of the
trade-off. Something that may seem strange in theory, is in fact complete-
ly natural in practice. We may for example assume that the person who
acquires an insurance policy is more interested in the additional security
it gives than the premium he has to pay for it. The insurance company, for
its part, can compensate for the various risks in a large measure by group-
ing them together, so that selling the policy is also a profitable matter for
them. Such dovetailing of needs is seen even more clearly on the stock
exchange. There, buyers and sellers have quite different intentions or a
different attitude towards the risk they run. The composition of their
investment portfolios will also generally be dissimilar and as such the
requirements will vary. Trading in securities, especially high-risk deriva-
tives, is therefore advantageous for all rational participants. Using the
same logic, it is not at all surprising that casual speculators who do not
have access to reliable information lose out on the markets. They easily
overestimate their real readiness to take risks and thus act against their
actual needs. In addition, the small investor will not as a rule have a bal-
anced portfolio that would compensate for the new risks he is taking on.
Under such conditions, however, no new values whatsoever that could be
split up are created. Integration has once again reverted to distribution:
the informed adversary gains what the amateur loses on the deal.
A good example of a mutually profitable trade-off is the granting of
credit to an entrepreneur by his bankers. In such a case, the two sides have
completely different agendas: the entrepreneur wishes to construct a new
branch factory, for which he needs a large loan of venture capital, while
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Integrative bargaining
Figure 4-2 Trade-offs increase the size of the pie
Initial Enlarged 'pie' by Differences Creation of value
bargaining in valuation
set
Risk aversion Guarantees, insurances
Scheduling, stratification
Time reference
Capability
Technol. transfer,
joint ventures
Future forecast Contingency agreements
the bank is interested in investing the many small deposits of its cus-
tomers in a profitable way over the long term. If these two objectives are
brought together in a single transaction, new values are created that are
beneficial to both parties. In this the bank takes on above all the role of
intermediary, replacing a great number of individual transactions and
contracts and reducing the risk of their performance.
Risk and time are not however the only differences that two parties to
a negotiation can bring to the table. Differing skills have a much more
immediate effect on our daily lives  why else would I have chosen a dif-
ferent profession from my neighbour? Why does the pilot of the commer-
cial aircraft that brings me back from Hong Kong to Switzerland not sit in
my place and I in his? Simply because the present distribution of labour is
without a doubt better for me and the other 380 passengers the way it is.
But let us come back to the question of conducting negotiations and put
the difference between distributive and integrative objectives in a nutshell.
The difference
A person engaged in distributive bargaining is striving for the greatest pos-
sible profit for himself; this automatically means the greatest possible loss
for his adversary. There is only one item of the negotiation to be split up
between the two parties. Because no new values are created and gains and
losses will always add up to zero, this type of bargaining is also known as
a zero-sum game. The only alternative is to break off the negotiation.
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Integrative bargaining
Integrative bargaining enlarges the scope, in that it deals with a num-
ber of issues simultaneously and thus makes exchanges, or trade-offs,
possible. The objective on both sides is maximum profit for themselves
with the smallest possible loss for the other. To this end, concessions are
exchanged between them, whence new values are created. The optimum
solution can then be chosen from a great variety of alternatives.
The following examples should provide a picture of how the trade-off
can facilitate a transition from one type of negotiation to another.
Example: environmental protection
Economy and ecology  are they irreconcilable? Not at all! The conflict
between industry and environmental protection can be readily resolved if the
municipality sets up the right inducements, taking economic considerations
into account, rather than merely handing out prohibitions right and left.
The head of a regional water board in the centre of Europe is keen to sub-
scribe to this modern principle of environmental policy. The authority run by
this committed environmentalist has targeted a paper mill that is polluting a
beautiful, ecologically unique lake. The new environmental laws certainly
give him the option of simply closing the factory down, but ultimately no one
would be served by such a decision. The region is classed as economically
depressed, and the mill offers 450 jobs to the small town on the lake where it
is situated. Such drastic action on the part of the water authority could also
enrage the local population and cause considerable trouble for the environ-
ment ministry. On the other side of the coin, the discharge of toxins into the [ Pobierz całość w formacie PDF ]