What You Should Know About Bargaining Power

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Bargaining power is exploited in a negotiation to reach an agreement. The bargaining tool renders the ability for one party to influence the other party for its own benefit in order to advance its objectives.

The respective strength of the bargaining power is measured on the grounds of how one side can impose its own requirements in a negotiation.

In principle, it constitutes the relative strength of the bargaining between individuals or organizations over a balance of interests.

Or more succinctly, the dominance in a negotiation of one over the other; in economic theory, the balance of interests translate to monetary values, which are divided according to the bargaining power.

There are various fields in which the principles of bargaining power are more pertinent as regards coherent analysis. And these include labour economics, diplomatic negotiations, collective bargaining arrangements, settlement of litigation and generally any negotiation.

It is also common for an individual to influence a negotiation on the basis of social status, image or reputation. As such, words of some negotiators carry more more weight automatically, than others. Furthermore, strategic moves or manipulation can be exploited as an aspect of information asymmetry between the parties.

Which can also compromise the availability of alternative means of negotiating power for one party, in that way one side is not necessarily tied to the offer of the opponent. During a hearing, this is reflected in the costs of delay. The reverse of alternatives are dependency relationships between the participants in the negotiations.

And the the patience of the negotiating parties is also a determining factor, the impatient can not wait for a side agreement, or concur with any concessions. In a unilateral bargaining, one party holds an advantage in the negotiations.

Bargaining power is frequently conveyed as a ratio of a counter-party’s capacity to have an impact on the position of the other party.

For example, BPA(Bargaining Power of A) = (Benefits and Costs that can be imposed upon B)/(A’s cost of not agreeing). BPB(Bargaining Power of B) = (Benefits and Costs that can be inflicted upon A)/(B’s cost of not agreeing).

In the event, that BPA is higher than BPB, then A holds greater bargaining power than B, therefore the final understanding often favors A. The opposite is anticipated should B have greater bargaining power instead.

Whenever a natural bargaining power is present before the trial, such a state of affairs translates to the existence of a systemic (structural or contextual) point of view. The negotiating position of a party can naturally be higher than the other, such a ratio can be real between superiors and subordinates or between the state and nation. This points to the presence of a handicap ramp which may affect bargaining power.



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