Question 1

Total trading gains available in a negotiation are high if:

Accepted Answer

A)  the trading parties have strong negotiating skills. 
B)  the traded commodity has a large number of substitutes. 
C)  the traded commodity has multiple uses. 
D)  the seller's value is significantly lower than the buyer's value. 
E)  the final price of the traded commodity exceeds the buyer's walk-away price. 
A)  the trading parties have strong negotiating skills. 
B)  the traded commodity has a large number of substitutes. 
C)  the traded commodity has multiple uses. 
D)  the seller's value is significantly lower than the buyer's value. 
E)  the final price of the traded commodity exceeds the buyer's walk-away price. D

Question 2

Delays and failure to reach an agreement are often viewed as inefficient, based on irrational behavior, or mistakes. Is this always the case? Explain why or why not.

Accepted Answer

No. The view that failure to reach an agreement is irrational implicitly assumes that information is perfect, and that there is initially a zone of agreement. This is generally not true for actual negotiations - information is limited and sometimes faulty, and there may be a very narrow or even no zone of agreement. In addition, it may be difficult to communicate with other parties to a transaction. Delay may be a method of communicating that a party is actually unable to pay a higher price, or accept a lower price. In this case, credibility is an important issue in a negotiation. It may be a method of establishing reputation.

Question 3

In multiple-issue negotiations where monetary compensation is available:

Accepted Answer

A)  there is less opportunity for mutual gain than when a single issue is at stake. 
B)  a new issue should be adopted only if the benefit to one side exceeds the cost to the other. 
C)  a new issue should be adopted only if both sides directly benefit. 
D)  a new issue should be adopted if it increases the benefit to any one of the parties, even at the expense of the other. 
E)  efficiency cannot be attained by merely increasing the total value the parties derive from the negotiation. 
A)  there is less opportunity for mutual gain than when a single issue is at stake. 
B)  a new issue should be adopted only if the benefit to one side exceeds the cost to the other. 
C)  a new issue should be adopted only if both sides directly benefit. 
D)  a new issue should be adopted if it increases the benefit to any one of the parties, even at the expense of the other. 
E)  efficiency cannot be attained by merely increasing the total value the parties derive from the negotiation. B

Question 4

The expected value of litigation for both firms A and B both is $500,000 in favor of Firm A. The court costs for A and B are $60,000 and $100,000, respectively. Calculate the collective benefit that can be obtained if both firms agree to an out-of-court settlement.

Accepted Answer

A)  $200,000 
B)  $160,000 
C)  $500,000 
D)  $40,000 
E)  $60,000 
A)  $200,000 
B)  $160,000 
C)  $500,000 
D)  $40,000 
E)  $60,000

Question 5

Some years ago, Time Warner (TW) and Disney were engaged in lengthy negotiations to strike a deal so that TW's cable television service would continue to carry Disney programming and Disney's ABC network channels. Without an agreement, TW would lose ABC and Disney shows in 3.5 million homes across seven major markets. Disney was demanding as much as $300 million from TW for the right to carry the channels. It also wanted TW to feature its new channels (including Toon Disney) and for TW to make the Disney channel part of its basic cable package. If its demands were not met, Disney threatened to pull its programming immediately, during the crucial ratings sweeps period when audience levels are measured and future advertising rates are set. Losing ABC and Disney would anger TW's cable customers who might decide to switch to rival satellite television to get the channels. TW wanted the current agreement extended for six months, by which time the AOL Time Warner merger would be completed (securing the company's position as a multimedia giant).
(a) Describe the relevant factors that would influence the "balance of power" in the negotiation between Disney and TW. Is each side's negotiation strategy utilizing what power it has? Explain briefly.
(b) Imagine that the negotiations were to end in failure. Provide at least two reasons (in general) why this kind of outcome could occur.
(c) Disney is worried that in the near future when interactive television is a reality, TW could hinder Disney and others from offering interactive programming over its cable lines while favoring its (TW’s) own programming. Disney is pressing TW to commit to treat others’ channels and programming the same as their own. TW says Disney’s demand is too broad for discussion and that it is impossible to negotiate the terms of businesses that don’t
yet exist. What are the pros and cons of considering these issues in the current negotiations?

Accepted Answer

The pros and cons of negotiating a deal

Question 6

The optimal response to an uncertain negotiation is risk sharing if:

Accepted Answer

A)  both parties are risk lovers. 
B)  both parties are risk averse. 
C)  one party is risk averse and the other is risk neutral. 
D)  one party is a risk lover and the other is risk neutral. 
E)  both parties are risk neutral. 
A)  both parties are risk lovers. 
B)  both parties are risk averse. 
C)  one party is risk averse and the other is risk neutral. 
D)  one party is a risk lover and the other is risk neutral. 
E)  both parties are risk neutral.

Question 7

A faulty gasket on a piece of machinery supplied by Firm Z caused a fluid leak that damaged equipment in Factory X. Determine the range of out-of-court settlements when the expected value of litigation for the two firms is $65,000 in favor of Factory X. The court costs for Firm Z are $20,000; the costs for Factory X are $25,000.

Accepted Answer

The settlement range

Question 8

Determine the value-maximizing order quantity when the buyer's total value from purchasing Q units of output is B = 30Q - Q2‚ and the seller's cost of producing Q units is C = .5Q2.

Accepted Answer

To find the value-maximizing o

Question 9

How do differences in probability assessments cause firms to assess different values for a transaction?

Accepted Answer

Even if two parties have identical prefe

Question 10

How do bargaining strategies differ between multiple-issue negotiations and single-issue negotiations?

Accepted Answer

When multiple issues are at stake, the b

Question 11

The minimum price that a seller is willing to accept for his product and the maximum price a buyer is willing to pay for the product are referred to as their:

Accepted Answer

A)  bid prices. 
B)  reservation prices. 
C)  offer prices. 
D)  aspiration prices. 
E)  take it or leave it offers. 
A)  bid prices. 
B)  reservation prices. 
C)  offer prices. 
D)  aspiration prices. 
E)  take it or leave it offers.

Question 12

Discuss the differences between one-shot bargaining situations and repeated situations. Will the situations produce different bargaining strategies? Explain why or why not.

Accepted Answer

In one-time negotiation between a pair o

Question 13

Under imperfect information, bargainers:

Accepted Answer

A)  may miss some efficient agreements due to self-interested strategic behavior. 
B)  can never reach an efficient agreement. 
C)  typically have sufficient incentives to fulfill the terms of the agreement. 
D)  will have an interest in revealing their true values at the outset of negotiations. 
E)  typically start with moderate and compatible demands. 
A)  may miss some efficient agreements due to self-interested strategic behavior. 
B)  can never reach an efficient agreement. 
C)  typically have sufficient incentives to fulfill the terms of the agreement. 
D)  will have an interest in revealing their true values at the outset of negotiations. 
E)  typically start with moderate and compatible demands.

Question 14

A would-be acquirer is preparing to make a first-and-final tender offer to acquire target Company T. The acquirer judges that Company T's reservation value is somewhere between $60 and $90 per share, with all values in between equally likely. Under its own management, the acquirer predicts that the target will be worth $100 per share. Should the firm offer $90 per share to assure that Company T will sell out? Determine the offer that maximizes the acquirer's expected profit.

Accepted Answer

No. With a $90 offer, the acquirer's pro

Question 15

In recent years, the U.S. government has often negotiated cost-plus contracts (CPC) with defense firms developing new weapons systems. Under a CPC, the government reimburses the contractor for the total costs it incurs. Frequently, the result is cost overruns in development. Why might this occur? How might an alternative contract structure remedy this problem? Could this contract solution cause a new problem?

Accepted Answer

As noted, under a CPC, the government re

Question 16

Describe factors that might cause bargainers to fail to reach efficient agreements.

Accepted Answer

Factors that might lead to bargaining fa

Question 17

When each party makes a single offer to divide profits, an equilibrium is reached only if:

Accepted Answer

A)  the individual profits add up to less than 100% of the total profit. 
B)  each party gets an equal share. 
C)  the individual profits add up to more than 100% of the total profit. 
D)  the sum of the individual profits is equal to the total profit. 
E)  an increase in share of a party does not reduce the share of the other party. 
A)  the individual profits add up to less than 100% of the total profit. 
B)  each party gets an equal share. 
C)  the individual profits add up to more than 100% of the total profit. 
D)  the sum of the individual profits is equal to the total profit. 
E)  an increase in share of a party does not reduce the share of the other party.

Question 18

The _____ is the upper boundary showing the combinations of buyer's profit and seller's profit at all possible prices within the zone of agreement.

Accepted Answer

A)  profit contour 
B)  payoff frontier 
C)  profit curve 
D)  contract curve 
E)  marginal benefit curve 
A)  profit contour 
B)  payoff frontier 
C)  profit curve 
D)  contract curve 
E)  marginal benefit curve

Question 19

Why might legislators often end up reversing their political position on an issue by voting in favor of a bill when previously they had spoken out against it?

Accepted Answer

Vote swapping (or so-called lo

Question 20

Briefly summarize how bargaining can be simultaneously cooperative and competitive.

Accepted Answer

Bargaining is cooperative due to the par

Total trading gains available in a negotiation are high if:

Delays and failure to reach an agreement are often viewed as inefficient, based on irrational behavior, or mistakes. Is this always the case? Explain why or why not.

In multiple-issue negotiations where monetary compensation is available:

The expected value of litigation for both firms A and B both is $500,000 in favor of Firm A. The court costs for A and B are $60,000 and $100,000, respectively. Calculate the collective benefit that can be obtained if both firms agree to an out-of-court settlement.

The optimal response to an uncertain negotiation is risk sharing if:

Determine the value-maximizing order quantity when the buyer's total value from purchasing Q units of output is B = 30Q - Q²‚ and the seller's cost of producing Q units is C = .5Q².

How do differences in probability assessments cause firms to assess different values for a transaction?

How do bargaining strategies differ between multiple-issue negotiations and single-issue negotiations?

The minimum price that a seller is willing to accept for his product and the maximum price a buyer is willing to pay for the product are referred to as their:

Discuss the differences between one-shot bargaining situations and repeated situations. Will the situations produce different bargaining strategies? Explain why or why not.

Under imperfect information, bargainers:

Describe factors that might cause bargainers to fail to reach efficient agreements.

When each party makes a single offer to divide profits, an equilibrium is reached only if:

The _____ is the upper boundary showing the combinations of buyer's profit and seller's profit at all possible prices within the zone of agreement.

Why might legislators often end up reversing their political position on an issue by voting in favor of a bill when previously they had spoken out against it?

Briefly summarize how bargaining can be simultaneously cooperative and competitive.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Linear Programming

Auctions and Competitive Bidding Available Online

Filters

Exam 15: Bargaining and Negotiation

Total trading gains available in a negotiation are high if:

Delays and failure to reach an agreement are often viewed as inefficient, based on irrational behavior, or mistakes. Is this always the case? Explain why or why not.

In multiple-issue negotiations where monetary compensation is available:

The expected value of litigation for both firms A and B both is $500,000 in favor of Firm A. The court costs for A and B are $60,000 and $100,000, respectively. Calculate the collective benefit that can be obtained if both firms agree to an out-of-court settlement.

The optimal response to an uncertain negotiation is risk sharing if:

Determine the value-maximizing order quantity when the buyer's total value from purchasing Q units of output is B = 30Q - Q2‚ and the seller's cost of producing Q units is C = .5Q2.

How do differences in probability assessments cause firms to assess different values for a transaction?

How do bargaining strategies differ between multiple-issue negotiations and single-issue negotiations?

The minimum price that a seller is willing to accept for his product and the maximum price a buyer is willing to pay for the product are referred to as their:

Discuss the differences between one-shot bargaining situations and repeated situations. Will the situations produce different bargaining strategies? Explain why or why not.

Under imperfect information, bargainers:

Describe factors that might cause bargainers to fail to reach efficient agreements.

When each party makes a single offer to divide profits, an equilibrium is reached only if:

The _____ is the upper boundary showing the combinations of buyer's profit and seller's profit at all possible prices within the zone of agreement.

Why might legislators often end up reversing their political position on an issue by voting in favor of a bill when previously they had spoken out against it?

Briefly summarize how bargaining can be simultaneously cooperative and competitive.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Linear Programming

Auctions and Competitive Bidding Available Online

Filters

Determine the value-maximizing order quantity when the buyer's total value from purchasing Q units of output is B = 30Q - Q²‚ and the seller's cost of producing Q units is C = .5Q².